Why maintain multiple solutions for diverse compliance regulations?
27 June 2019
deltaconX鈥檚 Fabian Klar explains why he left a market infrastructure facilitating reporting to provide an intermediary service that actively supports market participants
Image: Shutterstock
Unify your reporting processes with our deltaconX regulatory platform
When the reporting component of the 网爆吃瓜 Financing Transactions Regulation (SFTR) comes into effect in 2020, market participants will face significant additional reporting challenges. SFTR will certainly be the most complex regulation in terms of reporting. Therefore, we are convinced that with our approach of unifying and automating all relevant data collection, enrichment and validation processes across European Market Infrastructure Regulation (EMIR), the Markets in Financial Instruments Regulation/Directive (MiFIR/MiFID II), Swiss FinfraG (FMIA) and SFTR into a single solution鈥攄eltaconX鈥攚ill significantly reduce your efforts and costs to comply with multiple reporting regimes, and allow you to refocus on your core business.
Throughout 2019, we have participated in many conferences in which SFTR was the main topic of conversation. We heard a lot of people talking about the challenges and issues for the market to comply with this complex regulation, but only very few of the people talked about solutions.
Although we cannot resolve all the issues and challenges the market is facing鈥攆or example, the agency lending disclosure (ALD)鈥攑rocess that needs to be aligned), we support our clients with our innovative deltaconX software-as-a-service (SaaS) platform to overcome some of the main challenges.
Meeting the challenge of fragmented source data
Data can be received and processed from multiple internal and external sources to generate complete reports for our clients. This means that if our clients use multiple systems to capture different types of SFTs, we extract the required data from those various sources. Our customers are therefore not obliged to centralise all these data internally in advance of ingestion by deltaconX. We can also source information from different trading venues, clearing houses, brokers, etc. and combine those flows into one complete report to be sent to the client鈥檚 trade repository of choice. Therefore, the implementation efforts of our clients are significantly reduced.
However, some data may not be available in the transaction capture systems, for example, the type, year, and version of the master agreement. Usually, our clients use a dedicated agreement with their counterparties and specific transaction types. That information can be set as a default value in our system so that our clients do not have to provide all information in each transaction, but they can use default values. Our clients can decide which values should be defaulted under which condition and the same is possible for data mapping.
Supporting UTI generation and sharing
One of the most discussed topics is the unique transaction identifiers (UTI) generation and sharing between counterparties. The European 网爆吃瓜 and Markets Authority (ESMA) has published a waterfall schema on who needs to generate the UTI. Our system can receive reports including UTIs generated by the counterparties, central counterparties (CCPs), or trading venues. However, in case the UTI is missing in the data set, for example, because our client has agreed with a specific counterparty that they are systematically generating the UTI, deltaconX can generate UTIs according to market standards and send the UTIs in an end-of-day report to the counterparty, even if the counterparty is not a deltaconX user. For our clients, the UTI generated by our system will be sent back to the client鈥檚 source system, so that their records are complete.
Ensure the use of valid LEIs
Generally, our clients do not identify their counterparty with a legal entity identifier (LEIs). Our system is freely configurable so that our clients can still use their internal counterparty identifiers, and we transform those into valid LEIs.
Our deltaconX platform contains a counterparty repository in which all static data including LEIs have automatically loaded from the Global Legal Entity Identifier Foundation database on a daily basis. Hence, we can ensure that only valid LEIs are reported to the trade repositories by our clients.
Capture and report SFT lifecycle events
All material changes to the securities finance transactions that need to be reported are detected by our deltaconX regulatory platform and the respective message to the trade repositories are created automatically. Daily collateral and valuation updates, as well as margin data reports, are automatically generated and sent to the trade repositories. Our clients can, therefore, be assured that they comply with their reporting obligation without spending many hours per day generating complete reports for each and every lifecycle event.
Reporting in ISO 20022 format
We have created a generic XML schema which contains all information to fulfil the reporting obligation under multiple regulations, including SFTR. The required data will automatically be extracted from the customers鈥� source system(s) so that our deltaconX platform can generate the reports according to the applicable regulation鈥檚 required format (for SFTR it is ISO 20022 XML). In addition, we support manual data upload via MS Excel spreadsheets or manual transaction entry directly into the deltaconX GUI for those participants having only a few transactions per month.
Timely and accurate reporting
If our clients opt for system integration, deltaconX automatically generates reports containing all required data in a timely manner via straight-through processing. In addition, we validate the data before submitting them to the trade repository. If we do not receive all the required data for a specific transaction from the source system, or a data element is not in the required format, we put this transaction on hold and alert the user accordingly. Our client can then either input the missing data directly on our platform or add it in the source system and resubmit the transaction to deltaconX. Similarly, our client can correct the data element which was provided in the wrong format. Therefore, our clients do not need to perform a data validity check with any other system component. Data validation is a vitally important process that is included in our service package, and it ensures that no incorrect data is reported to the trade repository, and ultimately on to the national competent authorities (NCAs).
We know that ESMA and the NCAs are looking at rejection statistics, so the risk of our clients contributing to bad rejection statistics at their trade repositories is reduced to a bare minimum.
Regulation never ends
The past years have proven that even after entry into force of regulation, the journey to compliance is not over.
Various changes to EMIR kept the market busy. From the first version over Level 1 and Level 2 validations to the implementation of the new regulatory technical standards (RTS) back in November 2017, EMIR was constantly evolving. Even after the so-called EMIR re-write back in 2017, various changes in the validation rules made constant system adaptations necessary. And still, this journey is not over, as we see the European Commission鈥檚 regulatory fitness and performance (REFIT) programme coming into force soon. Although the intention of REFIT is to relieve the non-financial counterparties from some of their reporting and clearing obligations, REFIT means some substantial IT changes for the financial counterparties. For example, they are now obliged to report on behalf of small non-financial counterparties if they decide not to report themselves. Despite ESMA鈥檚 stated intentions to learn the lessons of EMIR, we anticipate a similar pattern of revisions to SFTR.
Highly secure cloud-based solution
We decided to build our solution in a highly secure private cloud, as changes in the regulations can be adopted much easier in a centralised hosted cloud than in multiple on-premise installations at each client. Now five years after the go-live of EMIR and multiple additional regulations, we consider that this was certainly the right approach as each of the regulations is constantly changing. Above all, EMIR went through multiple significant changes.
As previously mentioned, these changes are keeping the entire market busy, while most of our clients did not even realise that there were multiple changes going on. The reason for this is that we offer a fully automated reporting service. We manage these changes on behalf of our clients so that they do not have to adapt their source systems to the new requirements. Our aim is to enable our clients to focus on their core business.
We are not thinking about the challenges, but we are thinking of solutions. This was also the reason why I have decided to leave a market infrastructure that facilitates reporting and moved to provide an intermediary service that actively supports market participants to overcome these challenges.
One of our clients has stated: 鈥淚 have decided to move to deltaconX as I heard a lot of market participants having difficulties to handle the pace of regulatory changes, while deltaconX and their underlying clients never had any issue. This proved to me that deltaconX is an intermediary that has the full control about their own systems and services, and has the right knowledge and capabilities to add value for market participants.鈥�
When the reporting component of the 网爆吃瓜 Financing Transactions Regulation (SFTR) comes into effect in 2020, market participants will face significant additional reporting challenges. SFTR will certainly be the most complex regulation in terms of reporting. Therefore, we are convinced that with our approach of unifying and automating all relevant data collection, enrichment and validation processes across European Market Infrastructure Regulation (EMIR), the Markets in Financial Instruments Regulation/Directive (MiFIR/MiFID II), Swiss FinfraG (FMIA) and SFTR into a single solution鈥攄eltaconX鈥攚ill significantly reduce your efforts and costs to comply with multiple reporting regimes, and allow you to refocus on your core business.
Throughout 2019, we have participated in many conferences in which SFTR was the main topic of conversation. We heard a lot of people talking about the challenges and issues for the market to comply with this complex regulation, but only very few of the people talked about solutions.
Although we cannot resolve all the issues and challenges the market is facing鈥攆or example, the agency lending disclosure (ALD)鈥攑rocess that needs to be aligned), we support our clients with our innovative deltaconX software-as-a-service (SaaS) platform to overcome some of the main challenges.
Meeting the challenge of fragmented source data
Data can be received and processed from multiple internal and external sources to generate complete reports for our clients. This means that if our clients use multiple systems to capture different types of SFTs, we extract the required data from those various sources. Our customers are therefore not obliged to centralise all these data internally in advance of ingestion by deltaconX. We can also source information from different trading venues, clearing houses, brokers, etc. and combine those flows into one complete report to be sent to the client鈥檚 trade repository of choice. Therefore, the implementation efforts of our clients are significantly reduced.
However, some data may not be available in the transaction capture systems, for example, the type, year, and version of the master agreement. Usually, our clients use a dedicated agreement with their counterparties and specific transaction types. That information can be set as a default value in our system so that our clients do not have to provide all information in each transaction, but they can use default values. Our clients can decide which values should be defaulted under which condition and the same is possible for data mapping.
Supporting UTI generation and sharing
One of the most discussed topics is the unique transaction identifiers (UTI) generation and sharing between counterparties. The European 网爆吃瓜 and Markets Authority (ESMA) has published a waterfall schema on who needs to generate the UTI. Our system can receive reports including UTIs generated by the counterparties, central counterparties (CCPs), or trading venues. However, in case the UTI is missing in the data set, for example, because our client has agreed with a specific counterparty that they are systematically generating the UTI, deltaconX can generate UTIs according to market standards and send the UTIs in an end-of-day report to the counterparty, even if the counterparty is not a deltaconX user. For our clients, the UTI generated by our system will be sent back to the client鈥檚 source system, so that their records are complete.
Ensure the use of valid LEIs
Generally, our clients do not identify their counterparty with a legal entity identifier (LEIs). Our system is freely configurable so that our clients can still use their internal counterparty identifiers, and we transform those into valid LEIs.
Our deltaconX platform contains a counterparty repository in which all static data including LEIs have automatically loaded from the Global Legal Entity Identifier Foundation database on a daily basis. Hence, we can ensure that only valid LEIs are reported to the trade repositories by our clients.
Capture and report SFT lifecycle events
All material changes to the securities finance transactions that need to be reported are detected by our deltaconX regulatory platform and the respective message to the trade repositories are created automatically. Daily collateral and valuation updates, as well as margin data reports, are automatically generated and sent to the trade repositories. Our clients can, therefore, be assured that they comply with their reporting obligation without spending many hours per day generating complete reports for each and every lifecycle event.
Reporting in ISO 20022 format
We have created a generic XML schema which contains all information to fulfil the reporting obligation under multiple regulations, including SFTR. The required data will automatically be extracted from the customers鈥� source system(s) so that our deltaconX platform can generate the reports according to the applicable regulation鈥檚 required format (for SFTR it is ISO 20022 XML). In addition, we support manual data upload via MS Excel spreadsheets or manual transaction entry directly into the deltaconX GUI for those participants having only a few transactions per month.
Timely and accurate reporting
If our clients opt for system integration, deltaconX automatically generates reports containing all required data in a timely manner via straight-through processing. In addition, we validate the data before submitting them to the trade repository. If we do not receive all the required data for a specific transaction from the source system, or a data element is not in the required format, we put this transaction on hold and alert the user accordingly. Our client can then either input the missing data directly on our platform or add it in the source system and resubmit the transaction to deltaconX. Similarly, our client can correct the data element which was provided in the wrong format. Therefore, our clients do not need to perform a data validity check with any other system component. Data validation is a vitally important process that is included in our service package, and it ensures that no incorrect data is reported to the trade repository, and ultimately on to the national competent authorities (NCAs).
We know that ESMA and the NCAs are looking at rejection statistics, so the risk of our clients contributing to bad rejection statistics at their trade repositories is reduced to a bare minimum.
Regulation never ends
The past years have proven that even after entry into force of regulation, the journey to compliance is not over.
Various changes to EMIR kept the market busy. From the first version over Level 1 and Level 2 validations to the implementation of the new regulatory technical standards (RTS) back in November 2017, EMIR was constantly evolving. Even after the so-called EMIR re-write back in 2017, various changes in the validation rules made constant system adaptations necessary. And still, this journey is not over, as we see the European Commission鈥檚 regulatory fitness and performance (REFIT) programme coming into force soon. Although the intention of REFIT is to relieve the non-financial counterparties from some of their reporting and clearing obligations, REFIT means some substantial IT changes for the financial counterparties. For example, they are now obliged to report on behalf of small non-financial counterparties if they decide not to report themselves. Despite ESMA鈥檚 stated intentions to learn the lessons of EMIR, we anticipate a similar pattern of revisions to SFTR.
Highly secure cloud-based solution
We decided to build our solution in a highly secure private cloud, as changes in the regulations can be adopted much easier in a centralised hosted cloud than in multiple on-premise installations at each client. Now five years after the go-live of EMIR and multiple additional regulations, we consider that this was certainly the right approach as each of the regulations is constantly changing. Above all, EMIR went through multiple significant changes.
As previously mentioned, these changes are keeping the entire market busy, while most of our clients did not even realise that there were multiple changes going on. The reason for this is that we offer a fully automated reporting service. We manage these changes on behalf of our clients so that they do not have to adapt their source systems to the new requirements. Our aim is to enable our clients to focus on their core business.
We are not thinking about the challenges, but we are thinking of solutions. This was also the reason why I have decided to leave a market infrastructure that facilitates reporting and moved to provide an intermediary service that actively supports market participants to overcome these challenges.
One of our clients has stated: 鈥淚 have decided to move to deltaconX as I heard a lot of market participants having difficulties to handle the pace of regulatory changes, while deltaconX and their underlying clients never had any issue. This proved to me that deltaconX is an intermediary that has the full control about their own systems and services, and has the right knowledge and capabilities to add value for market participants.鈥�
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