As the memories of performances of A Christmas Carol fade, the ghosts of Christmas past, present and future are a useful analogy to convey the challenges firms will encounter in meeting their regulatory reporting obligations in 2016.
From the past, MiFID reporting of the 2007 vintage still provides a real and present risk to firms. The present, in the form of EMIR and DFA reporting, will undergo changes to requirements. Looking to the future there are a number new obligations that are due (REMIT, Money Markets) and significantly, the highly likely delay of MiFIR/MIFID II to 2018. A common theme running through all obligations is the increasing levels of scrutiny from regulators and therefore of firms’ senior management.
Despite all the focus and costs expended upon the new reporting obligations globally, still the most material risk to firms in getting their reporting wrong is UK transaction reporting required under MiFID since 2007. Last year we saw fines break new records, reaching GBP£13m and it is not inconceivable that in 2016 firms may receive higher fines. It is crucial that firms do not take their eyes off the ball so that they continue to adhere to legacy reporting requirements.
The introduction of EMIR and DFA obligations over last few years is still fresh in the minds of regulators, trade repositories and firms. In 2015 EMIR reporting has seen significant change with ESMA mandating trade repositories to introduce much higher levels of validation on firms’ submissions. In the year ahead we expect to learn of further significant changes to EMIR reporting obligations as a result of both the consultation of 2015 and knock-on effects of EMIR clearing. For those firms who have a DFA reporting obligation, the later part of 2016 will see changes to CFTC Part 45 rules as part of the rewrite. Firms will need to plan for changes to obligations that have only very recently been introduced.
Wherever you look, there are new reporting obligations with compliance dates in 2016. In the energy markets, REMIT OTC obligations are due in the second quarter. In the third quarter Switzerland is set to introduce its version of EMIR. Despite the advent of trade repositories, the central banks are requiring their own reports. In the second and third quarters of this year, the Bank of England and the European Central Bank are requiring money market reports. MiFIR/MIFID II is the one omission from the list, due to the highly likely scenario that it will be delayed from January 2017 to January 2018. Despite this delay preparation for the MiFIR requirements for transaction, trade reporting and instrument data reporting will dominate the change agenda for 2016/17.
Common theme – increased scrutiny
Regardless of whether the reporting obligation is a legacy requirement, recently introduced, or with a compliance date in 2016/17, the expectations and scrutiny of regulators is only on an increased trajectory. As such, expect increased fines for those more mature reporting regimes (MiFID). For more recent regimes, fines (DFA) have already been issued or greater scrutiny from regulatory bodies is becoming evident (EMIR). Future reporting regimes will be expected to hit the ground running with high quality reports expected from the get-go. The importance of ensuring correct reporting has never been as important to firms and the financial system as a whole.