2022: A year of regulatory developments, possible deviations, and certain delays

While 2021 wasn’t the busiest of years in terms of regulatory reporting go-live implementation, important developments did take shape. Among the more important of these developments was the publication of a series of consultation papers and updates to regulatory and/or industry technical specifications, including ESMA’s draft guidelines for reporting under EMIR, the FCA’s EMIR consultation paper, and a draft ISO20022 XML schema.

With many of the upcoming global regulatory reporting refits and rewrites being pushed out to later dates, there remains much uncertainty around timelines and requirements as we look ahead to 2022.

A push for global standards is causing delays

A major contributing factor to the delays has been a desire to accommodate global standards, primarily driven by The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO).

Implementing new local rule sets before the international standards are fully established will push additional operational burdens and expenses of further implementation phases on reporting firms, reporting providers, and trade repositories. Meanwhile, long delays to compliance dates continue to restrict the ability of regulators to efficiently monitor systemic risk in the markets.

Industry pressure could see key implementations deferred to 2023

The ‘Technical Guidance for Critical Data Elements (CDE)’ was issued in April 2018 and is relatively well understood by industry participants. However, there is still much work to be done before the requirements are fully embedded within the ISO 20022 schema and the Unique Product Identifier (UPI) is fully utilized by the industry.

The ISO 20022 generic schema is expected to be approved by industry bodies including ISO and SWIFT sometime in Q1 2022, although industry groups are pushing for a minimum lead time of 18 months between each jurisdiction finalising the schema and the accompanying compliance date. Additionally, the earliest approximate date for the Derivatives Service Bureau (DSB) making UPI available is expected to be some time in Q3 2022.

A deferral of the CFTC rewrite go-live date could cause problems

The Commodity Futures Trading Commission (CFTC) is expected to be the first mover to implement new requirements in 2022, though the 25 May compliance date is in doubt with many market participants having already requested a delay. The question is, how long should this delay be?

It is widely expected that any hold-up will last between six months to a year. Although this will enable reporting entities and Swap Data Repositories to better prepare for the new requirements, it will not be sufficiently long enough to accommodate ISO and UPI, meaning further implementations will be necessary within a year or two. If the delay is not approved, expect some chaos.

EMIR REFIT on track?

The timelines for Europe seem to be more considered. The European Commission (EC) has committed to an 18-month implementation date from when EMIR REFIT is approved and the FCA is expected to align closely to its timeframe. With the EC expected to approve the technical standards in Q1 2022, the REFITs are likely to have a compliance date in Q3/Q4 2023.

The silver lining to these significant builds is that there appears to be enough time for both the ISO 20022 and UPI requirements to be accommodated. Therefore, firms which start preparing early could begin building more strategic operating models as the probability of further REFITs in the near future is remote.

The biggest concern regarding EMIR REFIT is the possibility that we see divergence in requirements between ESMA and the FCA. In the first big test since Brexit, if the FCA decides on even minor deviations from the ESMA requirements, firms will need to split their operating model with inevitable increases across both risk and cost.

Changes to APAC and other regulations could add further burdens

APAC jurisdictions are also expected to see substantial change in 2022 and beyond with the Australian Securities and Investments Commission, the Monetary Authority of Singapore, Japan Financial Services Agency, and the Hong Kong Monetary Authority all planning rewrites in the next couple of years.

Although technically not a rewrite, there are other significant changes ahead in the UK and Europe regarding SFTR reporting with amendments to the ISO Schema, Validation Rules, and TRACE enhancements.

To add another layer of complexity into the mix, while the FCA has granted the industry its request to delay the go-live date until April, ESMA have denied it and are adhering to the original end of January deadline.

Already under pressure to make the January target date, many firms may now have to support two different operating models for a period of time. And, for good measure, late November we saw the EC publish a draft legislative proposal for MiFIR, suggesting even more transaction reporting development will be needed in the future.

There are far too many regulatory reporting changes on the horizon to mention here but one thing is for sure: regulatory and compliance teams will need to closely monitor shifting timeframes and requirements and change/operational teams are likely to become thinly stretched.

Moreover, regulators are actively increasing oversight and have begun issuing non-compliance fines, therefore complete, accurate, and timely reporting has never been more important.