The International Organization of Securities Commission’s (IOSCO) Technical Committee and the Committee on Payment and Settlement Systems (CPSS) proposed their joint template for the requirements on OTC derivatives data reporting and aggregation in August with the hope of improving the assessment and identification of possible systemic risks.
The new standards are designed to ‘beef up’ the essential infrastructure supporting global financial markets and better position institutions to foresee, withstand and avoid financial shocks. The hope is that events such as the 2008 Lehman Brothers collapse can be avoided — all good news so far!
But this additional security will come at a compliance cost as voluntary reporting becomes a thing of the past. Data-wise, centrally collecting and reporting data in these trade repositories (TRs) will have huge implications on data management infrastructure and governance processes, especially since the majority of current systems weren’t built to cope with the onslaught of requests for greater transparency the markets are currently witnessing.
The proposed legislation, which would come into effect as early as 2012, received backing from the International Swaps and Derivatives Association, Inc. (ISDA) in a letter reiterating the need for global TRs to ensure maximum visibility. Furthermore, the proposed standards will reinforce the ability of TRs to provide regulators with the tools necessary for analyzing and assessing systemic risk.
TRs are recognized throughout the financial regulatory community for their ability to bring transparency to previously opaque markets. The Dodd-Frank Act has identified repositories as one of the “three pillars” of its new infrastructure requirements.
Indeed, in the post-crisis era, there is no getting away from the fact that transparency and reporting have become the hallmarks of the financial services industry. And, what’s more, regulatory pressures and operational complexities will only continue to multiply.
This is no time for inadequate solutions and temporary palliatives. To truly prepare for IOSCO and the plethora of other regulatory changes on the horizon requires a fresh and strategic approach that delivers regulatory compliance — not only for today, but also for the future.