The Australian Securities and Investments Commission (ASIC) has published their second consultation on updates to their Derivative Transaction Reporting rules, building on their first consultation (CP 334) and addressing issues that they had previously deferred. As expected, ASIC continues to explore the correct blend of data elements sourced from the CPMI-IOSCO Critical Data Elements (CDE), foreign jurisdictions, and of their own making to determine the final reporting requirements.
Unexpectedly, ASIC is now proposing to implement these changes through two separate rewrites, taking effect in October 2023 and April 2024 respectively. Here we’ll be discussing Phase 1, the “draft remade ASIC rules” and Phase 2, known as the “draft amended ASIC rules”, as well as the continued focus on data quality by ASIC.
The first phase introduces format and validation requirements for existing fields at the regulatory level for the first time for ASIC reporting, as well as redefining and renaming many fields.
ASIC stresses that their intent is not to require substantive changes to reporting practices beyond the UTI and LEI during Phase 1, as reflected in the proposed format requirements, but widespread changes to field names and definitions may make current practices incorrect even if the Trade Repository (TR) continues to accept such reports.
Moreover, even if changes that reporting entities make to their workflows are limited in scope and scale, the shift to ISO 20022 XML for Phase 2 means these changes will not last beyond the six months that Phase 1 will be in effect. As Phase 2 also requires the updating of outdated reports to comply with the new rules, including those made during Phase 1, there will also be no long term effect on the coherence of data at the TR.
Beyond specification changes, Phase 1 cleans up the rules, removing outdated provisions and consolidating exemptions, and fully implements the UTI and the LEI. LEI implementation is as expected, with the significant clarification that non-LEI identifiers are not required to be updated for existing transaction reports that contain non-LEI identifiers.
Responding to feedback in the first consultation, the UTI generation waterfall now prioritises bilateral agreements, allowing reporting entities to bypass challenges in reconciling strict hierarchies between different jurisdictions. Unlike other regulators, ASIC has also included a safe harbour provision where the non-UTI generating party does not receive a UTI in time for reporting.
The proposed second phase of the rewrite implements many of the changes originally proposed in CP 334, implementing various CDE, UPI, and ISO 20022 XML for reporting. ASIC also proposes the re-reporting of existing transactions with a minimum remaining maturity, in line with MAS and ESMA proposals.
The CDE are largely implemented as originally proposed although ASIC has removed and edited a number of data elements. One area of concern is the number of changes ASIC proposes to make to CDE field definitions, which may limit a reporting party’s ability to easily standardise their reporting. Even where these are clarifications or improvements, they still introduce an additional analysis requirement that the CDE were designed to resolve.
ASIC intends to require the UPI to be reported but also proposes to include a number of data elements to account for product data which cannot be included when generating a UPI and may complicate standardisation of ISO 20022 XML for reporting these products. ISO 20022 is not discussed at length during this consultation, but ASIC does intend to require ISO 20022 XML for Phase 2 reporting and we expect to see more detail in the third consultation.
Surveillance and Data Quality
In the first consultation ASIC discussed ‘alternative reporting’ under the current rules, where some non-Australian entities can fulfil their ASIC reporting obligations by complying with their domestic reporting requirements. ASIC intended for these foreign trade reports to be additionally designated as ASIC-applicable and for the TR to provide ASIC with access to these reports, but this has never happened, and ASIC has never had access to this data.
Understandably, ASIC are considering removing the alternative reporting provision altogether from the rules and applying the standard reporting requirement, as well as other options to enforce ASIC’s access to the relevant trade data. ASIC has not concluded this discussion, but all options lead to much more scrutiny of this data in future, so affected parties should ensure that they are prepared to fulfil their obligations under the final rules.
ASIC also proposes to remove the delegated reporting safe harbour provision in Phase 1, following objections during the first consultation, citing low data quality, and will hold entities who delegate strictly responsible for the quality of reporting. Entities who delegate their reporting will need to ensure they can adequately assure the quality of reporting on their behalf, especially in the face of ASIC’s stated dissatisfaction with current data quality.
Throughout the consultation, it’s striking how frequently ASIC includes analytics from existing reporting data to justify its reasoning, discussing reporting practices across many fields and at times, cutting through aggregated data to the reporting behaviour of just a few entities. Alongside plans for greater scrutiny of alternative and delegated reporting, it’s evident that ASIC is already taking a closer look at derivatives data.
With re-reporting on the horizon, two rewrites, and a third consultation still to come, ASIC clearly sees room for improvement on all sides of the reporting equation and is prepared to put in the effort and focus to get it right. On their part, reporting entities will need to make sure they have the resources and knowledge to match.
- For a conversation with John or one of our regulatory specialists about the topics mentioned above, please contact us.