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Global coordination of capital market regulations and data requirements - Resilience of the EU financial sector in the global context
Turning Data into Information for monitoring financial stability
By Bodson Michael C. - President and Chief Executive Officer, The Depository Trust & Clearing Corporation (DTCC)
Nearly seven years after G20 leaders committed to making the global derivatives markets safer and more transparent, significant progress has been made, but much work also remains to achieve the goals.
Among the tools for the supervision of global market participants prompted by the G20, trade repositories emerged as a means to provide transparency into this previously opaque marketplace through the collection and maintenance of derivatives data.
Since 2008, regulators and the industry have made significant strides in addressing the data gap that existed during the financial crisis. Trade reporting regimes are now in place across all major derivatives jurisdictions globally and authorities have access to more data than ever before, which is critical to domestic market surveillance and the identification of counterparty risk. According to the Financial Stability Board (FSB), there are now 28 trade repositories authorized and operating, collecting derivatives transaction reports.
Although trade repositories are now receiving and reporting data to officials and the public, key questions remain regarding the usefulness of the data is and whether the regulatory reporting of it by trade repositories is achieving the G20 mandate.
The FSB noted late last year that although the majority of its member jurisdictions have introduced trade reporting obligations, the usefulness of reported data is being limited by data quality issues, including its formatting, completeness and accuracy. Despite the G20’s common commitment to trade reporting, the derivative reporting regimes that emerged following the financial crisis differed significantly along national lines, which created inconsistent sets of reporting requirements globally. For example, due to the current wide range of reporting fields required by regulators globally, DTCC supports reporting for a total of nearly 3,000 data elements globally. This makes it more challenging to standardize, access, share and aggregate data on a global scale. This combination of a lack of consistency in reporting regimes combined with ongoing data quality will act as barriers to achieving the G20 vision of prudential regulators having the ability to easily share exposure information on a global basis, especially during periods of stress in the financial markets.
As the operator of the world’s only truly global repository with unprecedented depth of coverage in all major jurisdictions, DTCC is uniquely positioned to identify opportunities where regulators can harmonize fields and adopt standards. A result of this analysis we proposed to the CPMI-IOSCO data harmonization working group a list of 30 fields that we believe should be aligned globally to enable effective systemic risk oversight. We are pleased to see progress made through the recent international efforts to establish consistent standards and to standardize identifiers.
However, to truly realize the goal of global data harmonization, a data access and governance framework is urgently needed. This will help ensure that data standards are maintained and updated as markets and regulatory requirements evolve, while also providing a formal structure for the appropriate sharing of, and access to, data across jurisdictions for systemic risk oversight.
Once guidance on data standards is agreed upon and a governance framework is established, a challenging but critical final step is for policymakers to ensure that these efforts are adhered to and implemented globally.
Ideally, we believe a single standard-setting authority is needed to monitor the adoption of standards in domestic rulemaking and to ensure compliance. This proven process has been successfully adopted by the Basel Committee and CPMI on monitoring the implementation of the Principles for Financial Market Infrastructures—and we urge that it be extended in scope to allow for the consistent adoption of global data standards and the corresponding governance framework.
Given the global nature of derivatives markets, global coordination is essential. Much of the work that remains stems from the fact that, without consistent adoption at the domestic rulemaking level, many of the obstacles complicating efforts to achieve cross-border data harmonization for market transparency purposes will remain unaddressed.
G20 leaders can support these efforts by continuing to address legal barriers to data access and mandating that jurisdictions adopt and adhere to these principles within a specific timeframe.