The group of regulators that are working to implement reforms to the oversight of their over-the-counter (OTC) derivatives markets say they have discovered barriers to derivatives data reporting to trade repositories that may require legislative intervention.
The so-called OTC Derivatives Regulators Group (ODRG) — which includes the Ontario Securities Commission (OSC) and the Autorité des marchés financiers du Québec (AMF), along with regulators in Australia, Brazil, Europe, Hong Kong, Japan, Singapore, Switzerland, and the U.S — issued their latest report that provides an update to the G20 on the progress in resolving cross-border implementation issues with OTC market reform.
While the report indicates that regulators have made progress on a number of fronts, it also notes that they have identified a couple of issues with respect to data reporting and trade repositories, in particular that there are legal barriers that can prevent reporting to trade repositories. These barriers include data protection laws, blocking statutes, state secrecy laws, and bank secrecy laws, which can prevent reporting of counterparty-identifying information to trade repositories.
“Barriers to reporting in certain jurisdictions are significantly reducing the effectiveness of reporting obligations and impeding the effective supervision of reporting entities,” it notes in a letter to the Financial Stability Board (FSB) on the issue. “We believe there is an urgent need for changes, which may include legislative changes, in these jurisdictions to remove such barriers, and the FSB and G20 should take measures to ensure that these changes are implemented as quickly as possible.”
In the meantime, the report says that some regulators have granted time-limited relief to allow smasking’ of counterparty-identifying information in reports to trade repositories. Other regulators insist that the requirement for reporting counterparty-identifying information cannot be waived and that non-reporting of counterparty identifying information because of legal, regulatory, or contractual impediments, is a breach of the reporting obligation.
The ODRG says that it is concerned that “little has been done” in many jurisdictions to address the barriers that prevent the reporting of data information that is required “to improve transparency in the derivatives markets, mitigate systemic risk, and protect against market abuse.”
The report notes that the regulators have called for jurisdictions to remove barriers to trade reporting, and it also asks the FSB push for changes too. Additionally, it says that the regulators are considering the possibility of setting a deadline for outlawing masking.
Data reporting rules have recently been recently been adopted in Ontario and Québec, and the report says that the OSC and the AMF are carrying out a comparability analysis to determine whether the derivatives data reporting rules in other jurisdictions are sufficiently equivalent to allow substituted compliance with their rules.
The ODRG expects to submit its next report for the G20 Leaders Summit in November. However, it notes that after that meeting, the ODRG members will still be in the process of implementing their laws and rules for domestic and cross-border transactions. “While legal frameworks continue to be implemented, ODRG members expect certain cross-border issues may continue to require attention,” the group says. And, they expect that as new rules are implemented, additional cross-border issues could emerge.