The REGIS-TR RoundUp
The REGIS-TR RoundUp is a hub for regulatory reporting news and views from your leading Trade Repository team and industry guests from across the globe.
The REGIS-TR RoundUp
S10:E12 EMIR Regulatory Fitness and Performance Program: Not So Much Refit as Rebuild?
In this special live recording, hosted by John Kernan, Head, REGIS-TR UK, SIX, John interviews our special guests about the impact of EMIR Refit and the the rollout, delivery and data quality improvements from a market participant perspective. With hands-on expert insights from Felicity Howley (Product Owner Regulatory Reporting, ABN AMRO CLEARING), Roberto Bermejo (Secondary Markets Department, Deputy Director – Post-trading division, CNMV), Tim Hartley (Director - EMIR Reporting, Kaizen) and Paula López (Head Client Services, REGIS-TR, SIX)
This podcast is brought to you by RegistryR, which is a member of the Six Group, and features members of the RegistryR team and special guests expressing their personal opinions, not the opinions of RegistryR as an organization. There is no representation made as to the accuracy or completeness of information in this podcast, and nor should it be taken as legal tax or anything. Hello and welcome back to the Registry Hour Roundup podcast. Yes, it's February and we are back in the virtual studio, but not for long, because in this show we're doing something slightly different.
Speaker 1:We are bringing you a show that was recorded live a few weeks back in Madrid at the Palacio de la Balsas, the Madrid Stock Exchange for those of you who don't speak Spanish and this was hosted by John Kernan, regular co-host here on the show, the man who used to put the canary in the wharf and now looks after St Mary's Axe, the CEO of Registry UK. And John was joined by Paolo Lopez, the nicest and most efficient person in the organisation, also the head of client services at Registry 6. And they have three very special guests Felicity Howley, who is the product owner for regulatory reporting at ABN Amru Clearing Roberto Banejo, who works the product owner for regulatory reporting at ABN Amru Clearing Roberto Benejo, who works in the secondary markets department he's the deputy director there in the post-trading division of CNMV and of course, tim Hartley, an old friend of the show, who is the director of reporting at Kaizen, and together they have a very full and candid discussion about the challenges posed by refit, how the implementation went and how the rollout and use of that data is progressing. So, without further ado, let's travel to Madrid, and here's John Kernan to Madrid.
Speaker 2:And here's John Kernan. Good morning everyone. The last time I stood on this stage, two years ago, I was 10 kilos heavier than I am now. God willing, when I come back in two years, I'll probably put it all back on again.
Speaker 2:Refit is what the tailor does to my trousers Adjusts them a couple of centimetres here and there, quickly, cheaply, easily done. These are not adjectives we've come to associate with emir refit. Whilst it may seem a bit pedantic arguing about semantics, I think it's important to acknowledge the scale of refit. Whilst it may seem a bit pedantic arguing about semantics, I think it's important to acknowledge the scale of refit, or rebuild, as I'm suggesting here, and the impact on market participants, regulators and trade repositories. As we explore some of this with our panel of esteemed experts, we'll examine whether the pain of rebuild, whether the pain of the rebuild, has resulted in a more precise reporting standards and better data quality. So, without further ado, I will introduce my esteemed panellists, starting with Felicity. Felicity is the product owner of regulatory reporting at ABN AMRO Clearing Bank. She's responsible for both EMIR and SFTR. She started out in clearing 18 years ago as a developer and transitioned into a business analyst. In 2021, she joined Reg Reporting as a business analyst, where she became product owner just in time to deliver Refit, where she became product owner just in time to deliver refit Outside of work.
Speaker 2:She's the mother of two teenage daughters and as someone who also has two teenage daughters, I suspect it's a bigger challenge than refit Tim. Tim has 15 years in the industry. He's a specialist in email reporting with a deep understanding of all the trade and position reporting lifecycle. Tim has assisted and advised a broad range of firms, including hedge funds, asset managers, brokers and non-financial institutions, to enable them to meet their regulatory reporting requirements, implement fit-for-purpose and best practice approaches, as well as avoid regulatory scrutiny and enforcement action. Prior to Kaizen, tim was an EMEA and SFTR reporting specialist for Kroll, and he's also spent five years leading and developing this, the CME trade repulsory, as a global head of client services.
Speaker 2:And now on to Roberto. Roberto is the deputy Director of the Post-Trading Area in charge of supervision of EMEA and SFTR reporting, ccps and CSDs. Roberto joined the CNMV in 2018 and since then he's been involved in the supervision of the CCP data quality of various EU reporting obligations and has been the CNMV's representative in the College of Supervisors. Roberto participates in EU policy development regarding post-trading. He's also supervised internal models for CCPs and investment firms. Previously, roberto worked for entities participating in financial markets and for global advisory firms. He has extensive experience in risk management, financial instrument valuation and corporate finance.
Speaker 2:And, last but not least, paola Paola's our head of client services, and I've had the great pleasure of working with her for the last 10 years at Registr. Prior to assuming the role of head, paola was the deputy head and, given that regulatory reporting is so technical and niche, it's my view that service support is a really challenging place to be. So, without further ado, let's get into the panel. So first of all, I'd like to understand better the challenges with the implementation of Reefage. How did you and all your participants navigate through this change process and how are things now, six months after the EU reporting start date and six weeks after the UK reporting start date? If I may start with you, felicity, please.
Speaker 3:Yep, can you hear me? Ok? Okay, yes, I think so. Yeah, so our journey for refit started in 2022 and we started looking at the preliminary documentation that was available by ESMA and we needed to get an understanding of what the impact was for ABIA and ammo clearing, notaring not just for regulatory reporting but also for the other departments within the organisation. And we realised that the impact was substantial and we had discussions actually with Regis, also with some other CCPs, to understand what they were going to do with their implementation, and basically, everybody was rebuilding from scratch and we were doing the exact same. And you have a very short space of time to do that. There's nothing like a regulatory deadline to put the pressure on. So we realized, in order to be able to deliver on time, we had to basically double the size of the team. So we started hiring new members of the team, and that's also a challenge in itself. You have a team of experts and it's it's very difficult to find expertise on the market who understands clearing, who understands regulatory and who understands the it. So, yeah, you're trying to make and get a balance, and that that was also very difficult.
Speaker 3:Um, but yeah, we, we went out basically on a roadshow to the rest of the organisation and shared the impact for the other teams. So we knew we needed to get new fields from them. But the most difficult part was we didn't know how those fields were going to come in. So that was actually one of the biggest challenges for us was getting the information from the CCPs. So we were building literally from the inside out, building the systems that we. So we were building literally from the inside out, building the systems that we knew. We had to deliver the reports to Regis and we needed to know how we were actually going to get the information in.
Speaker 3:And we have I don't know how many CCPs within Europe and within the UK, but they all have different ways of providing information, so there is no one standard way. And what we saw with the CCPs is that for a lot of them the specifications were delivered extremely late. It was kind of December January that we started to get the specs in and that put a huge amount of pressure on the organization, especially on the team that actually has to make the modifications and they have to read through all of the specifications, understand, and we want one kind of standard approach to provide us the information that we need and that that was a huge challenge because it really squeezed the implementation for us and also reduced the time that we had to do really thorough testing and we only had a few months. And, yeah, you have to try and do the best you can with the limited amount of information you have. So one of the biggest challenges, I think, was actually getting the information from the ccps and I would love to see what, uh, if we get a another version of refit, that we actually get the information at least six months in advance, because we're kind of at the end of the chain. We only have a few months to do the implementation once we get the finalized specs, and that just puts unbelievable amount of pressure on the whole organization and it's not fun.
Speaker 3:And I was talking with Nick yesterday. You mentioned that you lost some weight as well. I met Nick yesterday and I asked him have you lost weight? And he said that's what regulatory does to you. Yeah, the deadlines are so strict and the pressure is huge for everybody. And yesterday when we had the drinks, it was really nice to speak with some of you and actually to hear your stories as well. It was really nice to speak with some of you and actually to hear your stories as well, because, yeah, we really.
Speaker 2:We've all been through a hell of a ride and we're still on the roller coaster. Thank you, felicity.
Speaker 4:Same question to you, paula. Hi everyone. Hi everyone. I would like to go in line with what has been already mentioned by by our line managers um management, sorry and by felicity as a participant, where, of course, refit has been a big challenge for everyone.
Speaker 4:Um, we had to there.
Speaker 4:There were too many changes, uh, for which we needed to adapt in a very short period of time, but we took this challenge and and turn it into a opportunity to create a more robust and and platform well, platforms in this sense, because we we did not only create a new master entity data system, which has been already explained, but also a dashboard for our participants.
Speaker 4:One of the main challenges which I guess most of you in this room were affected was by the introduction of the FuturEye app, for which you struggled during the first days, but this was a security requirement that we were imposed by six, so I guess it benefits you as well as participants, because it uh, it's a double authentication method for you to securely access your your dashboards. Um for the testing during the early stages, it's true that we saw that testing rates were very low until up to the three months before actually the refit go live. This was followed by some instability issues we did experience during those days, which have been already covered by Alfonso. But calm after the storm. We see that trades are getting in, that data is being upgraded and now participants are now focusing on reconciliation rates, which is also a big player in this play, and focusing on data accuracy that is being timely reported and that is smoothly getting into our tier.
Speaker 2:Thank you, paola and Tim. Tim, you're obviously at kaizen. You've been, you've been working with lots of different types of firms to help them prepare for this change. Um, what's your experience of working with them for this?
Speaker 6:yeah, morning everyone, and thanks to john and nick and everyone at regions and six for having me here. Absolute pleasure to be in this fabulous building. I think, john, you said at the start refit was like a little bit tailoring to your suit. I I think it wasn't even a new suit, I think it was a whole new wardrobe. L quartering glaze did very well for out of refit, for sure.
Speaker 6:But to put it into context of what firms have gone through, um, you know, many commentators look at the changes that both firms and repositories had to do by looking at the increasing fields, but actually hide so many things. Every single field changed, apart from about maybe 10, something like that, that had no change at all. Almost all of them changed in some degree, whether that be the description, whether it be what goes into that field, whether it be the interpretation of that field, those are tough things to implement and indeed, when our friends at ESMA have near on a thousand pages of consultation and guidelines, it's what we've asked for, it's what we've wanted, but that comes with it the joint up requirement for firms to go through that and interpret and use all of that interpretation. And so, again, it's a tough ask for firms and what we've seen at Kaizen. The collaboration across the industry has been excellent, I think in the lead up to both UK Go Live for refit and EU Go Live for refit in April. Prior to that, the collaboration between trade repositories and firms and trade associations was really, really good and I think that trend is here to stay.
Speaker 6:I think Alfonso talked about the regulation is getting more complex. That's true. Definitely there's a prescriptive nature of how we look at the derivative regulations in Europe, in the CFTC, in the States from the FCA, in the UK. That's here to stay and firms are getting better, I think, at performing that testing. So we still see testing a little bit late, for whatever reason that may be, such as you know, know, resources are limited. Um, there's other regulations that are changing at the same time across g20.
Speaker 6:Um, but the the idea of this smart testing, of either assurance testing. So is your reporting uh, kind of valid but wrong? Have you? Have you met the validation rules? But is there something else? But also, more importantly, um, when you're testing your submissions in uat, um, do you, are you testing?
Speaker 6:Testing not only the new trades that you execute, but also the lifecycle events, the changes that we spoke about earlier for ISO 2022, for XML. That's been very tough for firms. We've seen that quite a lot and it introduces another level of complexity. There's also a little bit of complexity around explicit permissioning, even though it's not technically new for refit. But all those things together, I think the day one, or at least the first week, has been successful for firms in terms of there are a reasonable number of rejections, kind of day one, but they quickly. The success rate rose very, very quickly to have very small rejections from the submissions, but overall, overall, firms have, you know, risen to the challenge very, very well. There's still a lot to do, which we're going to talk about, um, but um, but are the firms that we speak into, the trades that we're testing, kind of show that the willing is there and firms are reading everything that's there and making sure that they can adhere to those changes as much as they can? Okay, thank you, tim.
Speaker 2:So that that's there and making sure that they can adhere to those changes as much as they can. Okay, thank you, Tim. So that's interesting and it brings us on to our next question. So when the refit technical standards were released, the focus was understandably on the additional 74 reportable data fields, additional 61 reconciliation fields and, as you mentioned, the mandatory use of the XML. This is for you, Roberto. Do you think that the aims of simplifying reporting and improving data quality are really compatible?
Speaker 5:Well, thank you, john, and thank you, regis, for having us here to have CNB to express our views and our vision. Well, you didn't ask me about how was the path for authorities to get through the rapid. I'm not here to complain, but it was also a difficult path. Complain, but it was also a difficult path. We have to rebuild all our capacities, all dashboards that we already had pre-refit and currently most of them are already working. Regarding your question in terms of data quality probably, probably is too early to to answer fully this. This answer rejection rates are not still at. We wanted to have them.
Speaker 5:And, regarding simplicity, I would like to break down a little bit the 74 new fields. Well, there are 70 additional fields, but not all of them needs to be filled for every single transaction or for every single counterparty. We expect that, basically, the UPI is there to make some of them redundant at some time. So we expect that at some time, some are eliminated, but, as Tim said, even those that were before refeed and most of them, or some of them, many of them, have been altered somehow. So, and apart from the, to be honest, these 74 new fields comes from 89 new fields that were additional and 15 were removed. So I completely understand when Alfonso and Maria had the clear answer that simplicity is not rich.
Speaker 5:Well, we think regulators should keep in mind that every single change we do, it creates costs for the reporters and it propagates through all the industries. We are well, regulators are aware, and we supervisors also suffer that. And regulators also should keep in mind that authorities, as I said at the beginning of my intervention, we don't have a lot of buffer capacity to adapt instantly to new changes. So well, anyway, my message is optimistic. We hope that. Well, the new fields some of them are there to provide the clearer picture of what the transaction is, giving more details on the counterparties. In my opinion, some of them are there to clarify things that weren't obvious at the beginning. And regarding just to finish XML format to finish XML format, we as final users were using XML prior to that, but in our opinion, of course, the XML is a richer format levels and reach the reporting but it adds complexity and we, as a final user, have to deal with nested files. It's difficult to extract information. So, yeah, we hope that this complexity, once we all are adapted will, will pay off um.
Speaker 2:Back to you, roberto. How does the cnnv view the long-term impact of emir refit on market transparency and systemic risk within the european financial system? And I guess the question I'm asking here is the question that is most often asked. As I said, even 10 years ago it was a question that was being asked how relevant is the data being collected? How is it being used by NCAAs like yourselves? Was refit really worth the effort?
Speaker 5:Well, data is used by final users and is used intensively. Well, I'm not in a macroprudential institution, but I can give you a flavor of some uses that this macroprudential institution does with the data. Macroprudential institutions do with the data. For example, our research department uses derivatives data in order to assess risk on a Spanish level, but the same thing is done by the European Systemic Risk Board and that is a common use that all the authorities do, even ourselves. In order to assess different policy alternatives, we use intensively mere data. We have other tools, for example, service or public consultation, but we are aware that, depending on who are asking to, the survey might be somehow biased and data is there and well, our policy initiatives now are more data-driven and I think that's good for the whole industrial markets in general.
Speaker 5:Regarding the use that we do at our department, we use EMIR data to assess compliance with clearing obligations, for example, with margin chains in bilateral and non-clear trades. That's something we look at on a continuous basis. We had several dashboards in which, for example, we see outliers in terms of data quality. We have many things. We run data quality indicators, similar to SMAS, and that's something we assess.
Speaker 5:For example, we have dashboard to understand how the market evolves from bilateral trades to clear trades, and we've been using intensively also data in events. For example, in the 2022-2023 energy crisis, we had a close look almost daily, look at how the positions evolved, and that was useful also to assess different policy alternatives that were on the table. Recall during the volatile on bank credit default swaps I think it was 2023. And you can remember, for example, credit Suisse, but not only. We had also a close look to this. Also, regarding live order commissioning, we've been using intensively data, so data is used, and now, for example, that we're having notional schedules, we may have a more accurate picture of how the risk is evolving.
Speaker 6:So well, yes, I am, we, we are intensive users of of the data yeah, and I think I just add, because I we get asked, because we see so many trades, we get asked a lot. You know how is the data used. Even today, we still get asked you, so you've still got to do it, regardless of what I say. But to Roberto's point, the data is used a lot.
Speaker 6:I think it's really important to look back at where we were 10 years ago, when you know Bear Stearns, fannie Mae, freddie Mac, lehman Brothers firms that were good, reputable firms right, and that is true, the financial crisis hit them in different ways, but the transparency that regulators had at that time was absolutely minimal across these different derivative products. There were some, but it was absolutely minimal, and so to have that now is really important. And I've spoken to the ECB a lot, I've spoken to the Bank of England a lot that love using the derivative data that EMEA reporting provides For some firms. That will be a bit scary, but actually, for example, in the UK, the EMEA reporting data goes to the Monetary Policy Committee that every month look at what interest rates should be for the UK, and that's really important, not for us that are working for different financial institutions, but for every single person in that country that has a mortgage and it really hits home that actually this data is important, that data quality is essential and it really, really is used.
Speaker 2:That's a really interesting perspective. So thanks Vlad.
Speaker 5:Let me add also regarding from a macroprudential point of view. We report on a monthly basis to the Spanish macroprudential authority some basic data and sometimes we have to dig into some details when there's something that has changed significantly.
Speaker 2:They are also users of data, so you're also using it to inform policy? Yeah, okay. Similar question to you, felicity ABN AMRO Clearing. Have you been able to repurpose the data? Can you leverage it for anything else, like trade monitoring or other activity?
Speaker 3:Not as such. We have a central court clearing system that feeds all of our other systems and we have multiple departments, especially in the area of risk, who are looking at different risks within the organisation and monitoring also trade activity of the clients, their behavior patterns, looking at credit risk exposure. So they're all separate teams. And we also have data science team, data analytics team, and we're looking at the data from also a different perspective, making predictions. But that's covered, luckily enough, by other teams. Our team is specifically responsible for the transaction reporting and we do. Actually we also do the the reconciliation of the controls ourselves as well on completeness and timeliness and accuracy and what tim just said as well, and we're reporting on behalf of, I think, 170 clients. So just because the data is matching doesn't actually mean that it's accurate and that's something that we have many controls in place to identify where the issues are. We still have controls to implement, trying to find where are the inaccuracies in the data and making sure that we are adhering and complying to the regulation.
Speaker 2:Thank you, felicity. Okay, so we've a couple more questions and then, hopefully, we should be able to have time for a few questions from the audience. So, paola, the title of this panel suggests that the programme of change required more of a rebuild than a refit, than a refit From a Registr perspective and a client perspective, and we've heard to some extent already, but perhaps you can just summarize what opportunities has this presented in order to improve the service to our clients?
Speaker 4:Yeah, I would like to first well my memories one, two. First step in provided the 10 years of experience I've been in Registr because I felt in my own skin the reporting start date of basically all the regulations. We thought that with the well in my own experience when I was first appointed at the client service side. This happened when we launched the new revised technical standards in Emir. I think it was back in 2017. Then, on the same year, it was the reporting start date for FinFRAC Completely new regulation and understanding of the guidelines as well.
Speaker 4:And three years later, which everyone may recall, not an easy summer either we had the launch of SFTR, which coincides as well with the COVID times, where we had to manage client expectations and handle queries from them on a remote working environment, which was brand new for everyone, I guess. So, yeah, so, as I've mentioned in the first part of the speech, this challenge has supposed a complete rewrite of the, of the regular, of the regulation which provided us the the chance to create a total new platform for clients, total new environment, which the main goal was to make clients more independent with the use of these tools, and I take advantage of this participation to thanks also my team and on the other areas at Registeer for the support that was provided by those times.
Speaker 2:To be honest, I'd completely forgotten about COVID. Maria asked me a couple of days ago, how many times did we run this event? And I was working out and I got our audience here the CNMV's expectations regarding the accuracy of more of the view. This has been an obligation for 10 years and and therefore there's not so much tolerance for non-compliance. And then, finally, if I could just add an extra question on the end, what advice can you give our market participants as to how they can meet the requirements to ensure effective supervision?
Speaker 5:Okay. Well, regarding enforceability, the CNMB historically has been too punitive in putting fines for data quality issues. Our approach has always been to be proactive, contactee with basically basically your clients when we have observed any data quality issue. And prior to RedFit, we were working on a tool to be even more proactive and we had the semi-automatic tool to interact with with counterparties that were performing poorly in the data quality indicators that we have. So, having said that, that doesn't mean that cannot change, but we don't expect from our side to change dramatically. But I also would like to express to the audience that under EMIR 3.0, it is suspected that the sanction regime evolves and if there's a detection of what is called systemic manifest errors, we authorities are going to be bound even we like or we don't like, we are bound to impose some fines and even periodic fines up to the remediation is implemented. So that's important. That's something that is not going to be there tomorrow, but it is there on the May 3.0. Regarding recommendations, lesson learned.
Speaker 5:Well, let me talk first about EMIR Refit implementation.
Speaker 5:We contacted with three repositories all across the board and we felt that I think Paula mentioned before and Maria also mentioned before testing was very poor months and weeks close to the ago life now, regarding legacy trades, one month ago, the obligation to migrate legacy trades into force and we see that there's still room for improvement for some counterparties, and that's something that it was mentioned before too.
Speaker 5:So, and now, from an overall point of view, in is our vision that the main recommendation is that counterparties should reconcile their reporting with their internal books, their trading books, accounting information, whatever. That would solve most of the repeated errors in reporting, like duplication, stall valuations, things like that should be easily identified. Also, we would like to mention that internal audit and internal control teams for counterparties should keep within the scope of their work to assess if their procedures, policies and implementation of those policies are correct and the implementation of those policies are correct, and when changes, when big changes, significant changes, are there. Of course, we recommend counterparties to allocate budgets, resources, time there in order to be to be prepared on time. Yes, an additional point I wanted to make is also you should control your delegates. You may delegate your reporting, but that doesn't mean that you can forget about that, and we sometimes we find that, um, that that's not the case, that you you delegate also your responsibility, so that's something, uh, key area to focus thank you, tim.
Speaker 2:I saw you scribbling there. You've got maybe 30 seconds if you want to make a quick point before we go to questions.
Speaker 6:No, I think it's very pragmatic. I'm seeing that. I think it's really sensible things that you're saying, roberto, on how the approach is. I think many of the NCAAs that we've spoken to are kind of put more effort on looking forward. So, what the data is now, how it's reported now, obviously, making sure that everything's been converted to the new format.
Speaker 6:I think that it's really important, rather, look at the old data that's um, in, in one sense, out of date, um, but then also that means you have got to get the new stuff right. You have got to make sure you've got your checks and balances in place, and you mentioned their reconciliation against books, against your internal books. I think it's smart, um, you know your assurance, testing, your, your training and of individuals we've not mentioned today. There's a world of things to learn and, um, to have all of those things, john, is, is absolutely essential. That's. That's the way you have a fighting chance of getting it right.
Speaker 6:Um, um, it's, and, and you, you got to read these regs. You got to read them in the amount of firms I speak to. That don't? It keeps me in a job. When, when, if you don't want to read the regs, I'm here, right, but, um, if you read the regs, it really really helps, um, but um, yeah, the reconciliations and just having the small checks and balances across a few things is is a world of difference from uh, from not but uh, we've we kept you long enough with this discussion.
Speaker 2:As I said, if you do have any further questions, I'm sure you can. Uh, you can grab one of us, as we're mingling uh various points during the day. So it remains to me to uh thank sincerely my panelists for their contribution and thank you also for your attention and your contribution. Thank you okay.
Speaker 1:well, that is it for this episode of the registry art roundup podcast, but do come back and join us. We'll be doing another show soon, also with some interesting insights recorded live at the palacio de la bolsas. And, uh, don't forget to join us on our linkedin channel, that is linkedincom slash company, slash regis hyphen, where you can network with John and with Felicity and with Roberto and Tim and Paola and myself, and, of course, I'll produce Manuel Moreno Garcia here in the virtual studio and make sure that you like and subscribe to the show on your favorite podcasting app so you never miss the insights under the hood and behind the scenes in the world of regtech, fintech and regulator reporting. So, from me, andrew Keith-Walker, from our producer, manuel, and from everyone else here in the virtual studio, we'll see you soon.