One of the voids for regulatory reporting standards is about to be filled as multiple EU and US reporting regimes adopt the ISO 20022 XML standard. The goal is to improve data access, data quality and to generate meaningful aggregate data from the millions of records being submitted under global regulatory regimes.
Currently, the ISO 20022 XML standard is most commonly used by financial institutions for payments and settlements but, as is evident below, it will soon break out of its traditional arena into the regulatory reporting space, impacting trade repositories (TRs), national competent authorities (NCAs), approved reporting mechanisms (ARMs) and, yes, reporting parties.
Reporting parties (both Counterparties and delegated reporting providers and vendors) are reporting using their respective TR standard submission format, be that CSV or XML – those submission format standards are unlikely to change even when the new Technical Standards for EMIR reporting are adopted.
However, for data quality, and direct and immediate data access, TRs will soon implement ISO 20022 XML message formats to provide data to EU NCAs, European Securities and Markets Authority (ESMA) and ACER (REMIT data received from TRs). Abide Financial and other market participants recently provided responses to ESMA’s consultation on ‘Access, Aggregation and Comparison of TR Data’ and ESMA has published the response documents to the public.
TRs, NCAs and ESMA are embarking on technology projects to develop, test and implement these XML messages and establish secure delivery channels. For an early view of sample XML messages, the draft technical standards are available for review.
MiFIDII / MiFIR
Firms will file their reports to their NCA either directly, through an ARM or via the trading venue through which a transaction was undertaken. Since the data reported must be in ISO 20022 XML format by the time it reaches the NCA, we can expect to see ISO 20022 XML schemas being published which will cover the following scenarios:
- Reference data information for all financial instruments traded or admitted to trading on trading venues;
- Transparency data information for equities and non-equity instruments;
- Transaction data, in the scope of the regulation, to be reported by investment firms, trading venues and ARMs;
- Weekly reporting of positions in commodity derivatives;
- Data on volumes of trading of equity instruments for the purpose of the volume cap mechanism; and
- Derivatives transactions data stored by the trade repositories.
Firms contemplating their MiFID II solution need to invest in XML technology capability and in-house XML expertise, especially firms reporting directly, as well as firms which qualify as Systematic Internalisers (SI).
Last week, ESMA published its ‘Discussion Paper – Draft RTS and ITS under SFTR’ and market participants will, in due course, receive finalised technical standards, technical ISO 20022 formats and the common TR submission template in which the information should be submitted to their selected TR.
TRs will be responsible for providing SFT data to a host of supervisors and regulators responsible for financial stability and securities markets. These include ESMA, the European System of Central Banks, the European Systemic Risk Board, the European Banking Authority, the European Insurance and Occupational Pensions Authority and the relevant national authorities.
As part of the data provision requirements of EMIR, TRs, ESMA and NCAs will have already established XML data delivery channels. As TRs elect to extend their commercial offering, and pending their SFTR registration approval from ESMA, the SFTR reporting service will leverage the existing infrastructure and expand the ISO 20022 XML message library to include SFTs.
Adding more support to SFTR XML adoption, both the European Central Bank (Money Market Statistical Reporting Regulation (MMSR)) and the Bank of England (Sterling money market data collection) have committed to the ISO 20022 XML syntax.
In a similar vein, in the US we see the SEC imposing stricter and more formal data quality obligations on Security-Based Swap Data Repositories (SBSDRs) than have been seen under the existing CFTC rules. In support of this, the SEC has proposed SBSDRs adopt both FpML and FIXML standards for regulatory reporting. For more information, Clarus FT has completed a helpful SBSDR recap.
ISO 20022 Message Registration
In order to achieve the adoption of ISO 20022 messaging in the regulatory reporting sphere, ESMA submitted its business justification for the registration of the new EMIR and MIFIR regulatory ISO messages in December, and the evaluation by ISOs Standards Evaluation Group (SEG), experts from both the Securities and Derivatives markets, is ongoing.
It is safe to say we have a well-documented ISO 20022 adoption trend which marks the beginning of the end of relying on spreadsheets and flat files to meet reporting obligations. The movement here in the EU starts with TRs and NCAs for EMIR, and will eventually impact reporting counterparties under MiFIR and SFTR. ISO 20022 XML candidate messages will be proposed to ISO by ESMA in short order to address the regulatory reporting requirements in the EU. Once the regulatory reporting ISO 20022 messages are published and regulators distribute their schemas, we will all take time to complete our implementation analysis.