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Publication date: 29 July 2013
Author: Paul Taylor, SWIFT
EMIR and Dodd-Frank – simplify and share operational processes
Naturally, financial institutions tend to prioritise the most pressing piece of regulatory work first. As they now move their attention from the piece of legislation with the most imminent impact (Dodd-Frank) and start to focus on EMIR, they are finding that their assumptions – that both regulations should be very similar in approach – are actually not correct.
The core differences between EMIR and Dodd-Frank include: timing of reporting; inclusion of collateral; and coverage of exchange traded products. But the most significant difference is the responsibility for reporting itself, with EMIR mandating that both counterparties are accountable. In turn, this introduces the requirement for a common, potentially matched shared reference.
Clearly some of the foundational work undertaken for one regulation can be used for the other, but the necessity in using a shared reference for reporting calls in to question operational processes prior to the reporting layer. Local matching of FX, Treasuries, Derivatives or Commodities (as the asset classes expand) will only take account of each individual’s reference, with a central match offering more value for such transactions given that the data is aggregated in a shared space.
Some end clients are still trying to understand if their broker counterparts will report on their behalf, but there does not seem to be commitment at that level, and indeed, the trade repositories themselves are still not seen to be mass marketing services in this domain. There are many debates over local vs central matching benefits, but certainly where EMIR is concerned, a shared infrastructure that matches a shared, reportable reference seems to make more sense.
Perhaps another example of belief that no matter what the requirement, or the timeline, the industry can meet the requirement, but with EMIR requiring reporting of certain FX trades from January 2014, provided that a repository is registered and able to accept reporting, and with no clarity regarding the operational processes required to meet the mandated regulation, perhaps it is time for an open, shared approach to definition of the operational process to be undertaken.