New global regulations and complex reporting requirements make it difficult for financial institutions to implement and maintain simple and straightforward compliance solutions.
For foreign swap dealers registered with the CFTC, meeting the Dodd-Frank Act trade reconstruction requirements poses significant business challenges. However, a new survey of non-U.S. swaps dealers suggests that some firms are starting to recognize that adopting compliance solutions to meet reporting requirements for Dodd-Frank can be leveraged to meet other regulatory reporting obligations such as MiFID2 or MiFIR.
“These are overlapping requirements so there is a bit of a silver lining in terms of being able to do trade reconstruction consistently across different regulatory mandates,” Harald Collet, global head of Bloomberg Vault, told Markets Media.
Bloomberg Vault recently hosted a roundtable event for foreign swaps dealers in London. The event included senior compliance executives from 12 swap dealers across Europe, Australia and Africa to discuss challenges to meeting the CFTC trade reconstruction requirements.
The results of a spot-poll taken at the event showed these executives were anxious about meeting U.S. requirements but also optimistic that adopting compliance processes to meet Dodd-Frank requirements could help them meet other regulatory obligations.
More than two-thirds of participants at the roundtable placed trade reconstruction among their top 10 priorities for compliance with Dodd Frank, but only five percent indicated they were confident that they could respond to an inquiry from the CFTC within the 72-hours timeframe the mandates stipulates.
At the same time, more than 60 percent of the attendees said that much of the effort invested to meet the CFTC's mandates could be leveraged for other regulatory requirements, such as MiFID2 or MiFIR.
"While we find our customers are concerned about meeting trade reconstruction requirements, they realize that the global regulatory landscape moving in this direction, preparation and implementation can only work to a firm's benefit," said Collet. "It is also helpful to think about trade reconstruction as an ongoing component of the trade surveillance process. Policy-driven monitoring and record-keeping offers the necessary governance and supervision for a firm to satisfy both regulatory compliance requirements and legal discovery obligations."
The Commodity Futures Trading Commission, as mandated by the Dodd-Frank Act, has imposed trade reconstruction and other recordkeeping requirements on the swaps industry, which involves recreating the entire life-cycle of a swap –a daunting proposition for most firms.
The CFTC’s rule 1.35 requires members of a swap execution facility to keep records of all transactions relating to its business of dealing in commodity interests and related cash or forward transactions.
“What really is interesting in terms of the European event, and what I think is new when it comes to trade reconstruction, is the overlapping set of requirements,” said Collet. “Firms are now finding that this is becoming a global requirement not just a U.S. requirement.”
