11 April 2014

Risk.net: Small corporates not reporting derivatives trades says Bafin

Many non-financial corporates in Europe are still not ready to report their derivatives trades, according to Stefan Pankoke, deputy director of over-the-counter derivatives markets at Bafin.

"We see that smaller market participants, particularly non-financial ones, are not yet fully ready to report the information needed. And they don't have legal entity identifiers (LEIs) sometimes, because they failed to apply for an LEI on time, or because there is so much backlog at the LEI providers that it takes some time to finalise that process", said Pankoke at the annual meeting of the International Swaps and Derivatives Association in Munich.

Reporting trades with non-EU counterparties also remains a challenge. Guidance published by ESMA in August states that trades between an EU and non-EU counterparty need to be reported, and the latter's identity given. This contravenes privacy laws in a number of jurisdictions, such as Singapore and South Korea. US regulators face the same issue, but have provided banks with no-action relief until June 30, allowing them to temporarily mask the identity of counterparties in problematic jurisdictions while a solution is sought.

European regulators cannot do the same, Pankoke noted: "This causes us a lot of headaches because – for better or worse – EMIR does not allow us to issue hundreds of no-action letters to exempt certain transactions or to mask the identification of a client. This is a hot topic for us – we don't know yet how we're going to deal with it in the long term. What we hope for is that in many cases markets will find workarounds and manage to identify their counterparty in as many cases as possible", he added.

"While regulators are mindful of these difficulties, we expect enforcement to kick in gradually and with some understanding that there are many inconsistencies and mistakes in that data", Pankoke said. Each data error is technically a violation of EMIR, he added, so market participants need to file clean reports.

This would be easier if common reporting standards existed at a global level, but some regulators have been reluctant to move on the issue. Christopher Young, director of US public policy at Isda, said the association had pushed for a common reporting language in the US, using financial products mark-up language – or FpML – but were rebuffed by regulators. Bafin would support a push towards a common reporting language.

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