The FCA has added its voice to a chorus of warnings that overlapping European rules on derivatives reporting will intensify the confusion already faced by market participants as a result of new reforms coming into force.
The UK regulator was one of a number of respondents to a European Parliament consultation on the coherence of post-crisis financial services legislation held last year. Up until now, OTC derivatives markets have operated privately between counterparties, allowing risk to build up away from regulatory scrutiny. As part of the European Market Infrastructure Regulation, both listed derivatives and OTC derivatives need to be reported from February 12. The new rule adds to existing reporting obligations under the Market in Financial Instruments Directive II.
The FCA response said: “This potentially leads to double reporting and differences in information reported, which makes it harder for national competent authorities (NCAs) to use the information and is burdensome and expensive for firms. In order to avoid confusion for firms and NCAs we would suggest that all reporting requirements on financial instruments are considered together and rationalised.”
Similar concerns were echoed by the French financial regulator L'Autorité des Marchés Financiers, UBS, State Street, UK buyside trade body the Investment Management Association and the FIA European Principal Traders Association, which represents proprietary trading firms. Remco Lenterman, chairman of the FIA EPTA, said firms trading listed derivatives now have to report three times: to the exchange that lists the contract, to the national regulator under MiFID rules, and to newly-created trade repositories under EMIR.
A spokesman for ESMA said the securities regulator may look for a more harmonised approach to reporting requirements under MiFID and EMIR in the near future.
As well as the operational and legal challenges associated with reporting trades, there are differences among national regulators that ultimately have oversight for the reporting rules. A spokesman from the FCA said the regulator recognises the challenges and that it would be proportionate in its response to any instances of non-compliance: “Our initial focus will be solving any reporting problems and helping the industry meet the new standards. Firms should however recognise that non-compliance could lead to enforcement action.”
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