The pain of regulatory reporting implementation projects will still be fresh in the memory of most firms from the work done to implement MiFID II in 2017, or more recently, the implementation of SFTR. And so, the CME’s decision to wind down its European regulatory reporting platform is unwelcome news for firms currently using their services. There is never a good time to be faced with a complex, time-critical transition to a new provider but this one feels as though it has come all too soon.
On the face of it the necessary course of action is straightforward – find an alternative. But as is always the case where regulatory reporting is concerned the reality is more complex.
Here we explore what’s happening, what this will mean for affected firms and what needs to be done to ensure ongoing compliance.
What is happening?
The CME is winding down its Approved Reporting Mechanism (ARM), Approved Publication Arrangement (APA) and Trade Repository (TR) services from 30 November 2020.
Am I affected?
Firms that have been submitting, or intend to submit, reports to an ARM (for MIFIR transaction reporting), APA (for MiFIR transparency reporting) or TR (for EMIR or SFTR reporting) operated by CME will be affected. This includes Nex Regulatory Reporting and Nex Abide Financial clients.
What do I need to do?
There are decisions to make and actions to take:
- Assemble a project team – likely to involve representatives from at least IT, Operations, Compliance and Legal;
- Consider a different approach – this might involve reporting directly to the FCA Market Data Processor under MiFIR, for example, seeking to delegate reporting to counterparties under EMIR, or involving a third party solution to assist with the creation of reports;
- Identify potential replacements – if pursuing a similar approach to that already in place, ESMA maintains a register of approved ARMs and APAs, as well as lists of TRs registered under EMIR and SFTR;
- Perform due diligence – certain service providers may align better with your activities than others, or integrate more successfully with your other systems and solutions;
- Re-design your framework – whatever approach is taken, the framework will need to change to reflect new processes, file formats, logic specifications and so on;
- Pre-implementation testing – time has usually been short in the run-up to reporting requirements coming into effect, with the result that pre-implementation testing has not always been as robust as firms might like. The sooner firms can start testing, the more effective that testing will be;
- Start reporting – CME services will cease to operate from 30 November – last minute scrambles are not conducive to correct reporting;
- Post-implementation testing – all of the regimes in question feature either an explicit or implicit requirement to monitor the completeness, timeliness and accuracy of reporting. Ensure that there is a regular, independent, meaningful monitoring of reporting at a frequency which reflects the volume of transactions being executed;
- Clear out the cupboards – draw a line under your existing arrangements by undertaking a full review of reports submitted prior to the transition. Better to find and address any skeletons as part of the transition project than further down the line when memories have faded, resource has diminished, and historic data may be less accessible.
Is there any good news?
Not much. This is going to be a painful exercise for most affected firms.
But if there is a silver lining then it may be that the situation serves as an opportunity to revisit many of the assumptions and interpretations made in years gone by and to build a new framework supported by the lessons learned from previous implementation projects. This could contribute to material improvements in the completeness and accuracy of reporting in the longer term and so head off any regulatory scrutiny that might otherwise have been on the horizon.
How we help
We can support firms with any of the key activities mentioned here. In particular, we have extensive and well-referenced experience in providing:
- Support with the design and creation of reporting specification documentation; and
- A solution that combines consulting with technology to provide independent assurance as to the completeness, timelines and accuracy of regulatory reporting, which we now offer on a regular, ongoing basis to reduce the burden of internal monitoring.