CySEC review of investment firms’ data sent to repositories identifies several areas of concern
The review assessed the quality and timeliness of data reported by 29 Cyprus investment firms to Trade Repositories.
The Cyprus Securities and Exchange Commission (CySEC) has earlier today posted findings of its review of the quality of data reported to Trade Repositories, under Article 9(1) of EMIR by Cyprus Investment Firms (‘CIFs’).
Article 9(1) of EMIR states:
“Counterparties and CCPs shall ensure that the details of any derivative contract they have concluded and of any modification or termination of the contract are reported to a trade repository registered in accordance with Article 55 or recognised in accordance with Article 77. The details shall be reported no later than the working day following the conclusion, modification or termination of the contract … Counterparties and CCPs shall ensure that the details of their derivative contracts are reported without duplication.”
The purpose of the review was to evaluate the quality and timeliness of data reported by CIFs to Trade Repositories. The Review, which assessed the quality and/ or timeliness of data reported by 29 CIFs to Trade Repositories, identified several areas of concern.
Portability of data between Trade Repositories and reported outstanding positions
The review has shown that a substantial number of positions in derivatives reported to Trade Repositories was not updated in accordance with the technical standards on reporting that came into effect in November 2017 and were incorrectly recorded as outstanding. The review indicated that CIFs were not updating positions as they were terminated, and that no reconciliations were performed between the outstanding positions in CIFs’ records and Trade Repositories’ records, and therefore possible failures were not identified and corrected (e.g. sending modification reports in cases where there are incorrect outstanding positions reported in Trade Repositories). Furthermore, data reported prior to the existing technical standards was of poor quality and not in line with the existing standards under EMIR.
A significant number of reports submitted to Trade Repositories by CIFs were rejected. The most common reasons for this failure include inconsistent formats, use of non-compliant identifiers, missing information from mandatory fields, as well as the fact that rejected reports were not subsequently resubmitted within two weeks from the rejection date.
Based on the data reported, CySEC observed that there were cases with unpaired trades. When both counterparties to a trade have an obligation to report, then two reports must be submitted to the Trade Repositories for each trade. Failure in pairing occurs when the two counterparties submit their reports using different Unique Trade Identifier (UTI), resulting in unpaired trades. In addition, even in cases of paired trades, not all associated reporting fields were matched. The most common reasons for the existence of unmatched trades relate to inconsistent formats or use of noncompliant identifiers.
The review has shown that CIFs did not adequately monitor their arrangements in order to ensure full compliance with EMIR reporting. In the event of failures, CIFs did not take immediate action to rectify any issues and resubmit reports in a timely manner. Also, CIFs did not analyze the causes of failure to ensure that they identify and address any risks or issues so as to reduce failures to the minimum number possible.
Use of intermediaries – reporting/submitting firms
When CIFs were using an intermediary to report to Trade Repositories on their behalf (reporting/submitting firms), no proper communication between the two parties took place, and as a result, the failures were not corrected.
CySEC recommends that all regulated entities undertake a full review of their respective EMIR reporting policies and arrangements. They are advised to nominate a person within their firm, who will be responsible for the daily monitoring of EMIR reporting. Fulfilling the EMIR reporting obligation will require dedicated oversight to ensure any issues and/or failures are rectified appropriately.
Regulated entities that do not comply with the above will encounter enforcement action.