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Regulatory Convergence the Italian American way

By Alan McIntyre, Elena Gaetini, and Lloyd Altman

Throughout the financial reforms since the 2008 crisis the phrase ‘regulatory convergence’ has been frequently used. From the perspective of the practitioners implementing the likes of Dodd-Frank and EMIR within the industry though there has frequently been an apparent disconnect between the rhetoric at the G20 global/FSB/CPMI-IOSCO level and the rules being enacted at local jurisdiction level. As an example Risk Focus previously commented on the different directions that the CFTC and ESMA are moving in for the reporting of collateral within the respective drafts of intended reporting changes issued by both bodies. Risk Focus also participated in the consultations and took the opportunity to provide this feedback directly to the regulators.

 

Italian and American Flag

 

It is therefore very encouraging when we see examples of such convergence and regulators moving in very similar directions. Risk Focus commented earlier this year about the CFTC DSIO (Division of Swaps and Intermediaries Oversight) Advisory Letter and its call to the US Swap Dealers to ensure that they had sufficient processes and tools in place to verify they were reporting good quality data. In a discussion with our new European Head of Business Development & Governmental Affairs, Elena Gaetini, she brought our attention to a similar communication from CONSOB to the Italian EMIR transaction reporting community. CONSOB, the Commissione Nazionale per le Società e la Borsa, issued a Communication in which it called on all reporting firms to provide further information and evidence with regards to their efforts to comply with EMIR reporting regulations.

The parallels between the CONSOB communication and the CFTC DSIO letter are clear with the Italian national regulator requiring that firms:

  • Document the adoption of tools to monitor/control the quality of data being reported to the Trade Repository.
  • Identify the organization unit responsible for ensuring compliance with EMIR
  • Document the adoption of procedures formalizing that activities are EMIR compliant.

This last point in particular is very reminiscent of the DSIO letter which you may recall argued for Data Gatekeepers, Automated Reviews of Reported Data and Erroneous Record checks.

The CONSOB letter specifies that the control tools required apply for data reported both directly or through delegated reporting. This differs with the CFTC model obviously as Europe has dual-sided reporting whereas the US has the Reporting Party model. However even across that divide there is an echo as the CFTC letter required that firms still need controls in place when using Third-Party Service Providers. The CONSOB letter differs from the CFTC letter as it includes and in parts focuses on Non-Financial reporting parties making clear that they are responsible for their data quality. Again the CFTC Reporting Party model means that this doesn’t really apply across the pond.

The Italian regulator goes on to specify two priorities it will be taking with regards to it’s enforcement of EMIR:

  • Priority 1 – The quality of the data reported to the Trade Repository. [Where CONSOB will monitor the data quality, the NACK rates and the matching rates].
  • Priority 2 – The monitoring of derivative transactions executed for hedging purposes. [Where CONSOB will review firms procedures to monitor clearing thresholds].

So again echoing the CFTC letter it’s clear that data quality is the main concern of the Italian body and the most likely reason for any future enforcement actions against firms that are deemed to have fallen short of their obligations to ensure that the data reported by them or on their behalves is accurate and complete. And in exactly the same way that Validate.Trade ticked the data quality boxes demanded by the CFTC DSIO it does the same for the EMIR data quality as demanded by CONSOB.

  • Document the adoption of tools to monitor/control the quality of data being reported to the Trade Repository

As the leading provider of control and compliance software for regulatory trade and transaction reporting this is exactly where we help our clients through providing industry leading rules based validations that benefit not only from Risk Focus’s proven record in this arena but also from the community based input and verification of those rules.