Investment dealers are facing a review of their compliance with the new rules designed to improve transparency in the over-the-counter (OTC) derivatives market.
The Ontario Securities Commission (OSC) sets out its plans to review dealers’ compliance with derivative trade reporting requirements in a notice published on Monday. The requirements first took effect last fall.
The purpose of the planned reviews, the regulator states, is: to assess compliance with the reporting requirements; identify any obstacles to compliance; to reinforce the importance of this reporting; and to help dealers understand their reporting obligations, and the OSC’s expectations, under the new rules.
The reviews will be carried out by a joint team involving both the OSC’s derivatives branch and its compliance and registrant regulation (CRR) branch in the coming year.
The reviews will examine firms’ systems and policies to ensure that trade data is being reported accurately and on time, and that counterparties are being properly identified, among other things, the OSC states.
The move to require derivatives data reporting in the wake of the financial crisis is intended to help regulators monitor for systemic risk in that part of the market, and to help uncover possible market abuse.
The compliance reviews will initially focus on the dealers that are most active in the market, the OSC notes. Dealers that are singled out for a review will be notified by the regulator, setting out the scope of the review, which will start with a request for relevant books and records. The regulator’s staff may then visit dealers’ premises to review their internal processes, and to compare internal trade records with the data that has been reported to trade repositories. The reviews will also include interviews with firms’ senior management and key employees.
Firms that undergo these reviews will receive reports from the regulator setting out any deficiencies, notes the OSC, so that dealers can address them.
The regulator also intends to publish its findings (without naming firms) “once a sufficient number of reviews have been completed and their results analyzed,” the OSC adds.