The European Securities and Markets Authority (ESMA) published the second edition of its Data Quality report on 1st April 2022, its purpose, to provide a holistic view of the coordinated supervisory actions of both ESMA and National Competent Authorities (NCA’s) whose objective it is to achieve improvement in areas where insufficient quality of data is identified.
Their joint effort of ensuring high data quality relies on an efficient oversight of the reporting counterparties by the NCA’s and of the Trade Repositories (TR’s) by ESMA. Their scope relates to data gathered under the European Markets Infrastructure Regulation (EMIR), and for the first time in 2021, the Securities Financing Transactions Regulation (SFTR).
Regarding EMIR, equity and futures derivative contracts continue to be the most prominent asset class and contract type respectively.
ESMA carried out three supervisory projects focusing on:
- The ingestion and processing of data by TRs,
- Application of EMIR access filtering rules for provision of data to NCA’s according to their mandates and
- The assessment of consistency of two key regulatory reports; the trade activity and trade state reports.
The regulator determined that supervised trade repositories broadly follow regulatory and supervisory expectations although in some cases there were some shortcomings in the quality of the reports.
The analysis similarly highlighted positive results from ESMA’s targeted actions with specific focus on the reporting of valuations and collateral, of which, compared to the previous year, misreporting of valuations was significantly reduced by around 50% for reporting firms subject to the review.
NCA’s analysed the results of over 30 tests related to different quality aspects such as completeness, accuracy, or timeliness, of which the latter, detailed improved reporting practices with the elimination or significant reduction of late reports.
While less than 10% of reported derivatives tend to be reported late by the counterparties, more than 20% do not receive updated valuation daily, as mandated by EMIR. Additionally, reconciliation continues to be insufficient with approximately 5 million of reconcilable derivatives remaining unpaired.
While much attention has already been put to timely reporting, reporting of valuations and reconciliation, clearly much more improvement is needed, and those areas will continue to be the point of focus of ESMA and NCAs going forward.
Regarding SFTR, in terms of number of open transactions, securities lending and borrowing is the largest SFT type reported with around 70% share at the end of 2021, with Credit Institutions accounting for the largest proportion of reported open SFTs (around 50%).
Trade repositories and reporting counterparties implemented the first SFTR XML schema update since the start of reporting in July 2020. The update aimed at removing a technical shortcoming that could decrease the quality of the information available to the regulators, of which, the key findings were around 10% of SFTs are reported later (after T+1), rejections have been low (only 2%) and as regards reconciliation, the pairing rate continues to be relatively low at 60%.
Timeliness of reporting, adherence to format and content rules (via rejections) and reconciliation (pairing) has been the point of focus of ESMA and NCAs during 2021. While progress has been made, some areas (particularly reconciliation) need to remain areas of focus also in the future.
ESMA also monitored and coordinated with NCA’s and TR’s regarding the relevant aspects of the wind-down of the UnaVista repository service under SFTR as well as the associated porting of SFTR data to other TR’s.
Of noteworthy mention, the data quality report detailed the staggering impact of BREXIT, for both EMIR and SFTR, with data reporting volumes falling approximately 50% across both regimes.
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MAP FinTech’s EMIR Reporting Service is designed to tackle a multitude of challenges posed by tagging and delegated reporting as part of ΕΜΙR compliance. Our EMIR Reporting Service has unrivaled participant connectivity with data mapping and enrichment and Trade Repository (TR) connectivity. The result is a comprehensive matching and reconciliation service for vendor-delegated and dual-sided trade reporting. Through our powerful Polaris platform, we automate this complex process, and we effectively investigate, validate and manage your data. At the same time, our team of specialists provide training throughout the implementation process to ensure that key personnel understand the regulation and process. Our service includes the technology and the consulting from our experts to provide your firm with a single solution for all asset classes across EMIR jurisdictions.
MAP FınTech, under its SFTR reporting service, and on behalf of the client, reports the execution details of each SFTR Reportable Transaction and of any modification, update or termination to a TR within the timeframes set by the SFTR Legislation. Via this service, MAP FinTech also maps all contractual data with the technical requirements mandated by the SFTR Legislation. MAP FinTech will maintain and update the pertinent fields to reflect the latest SFTR transaction reporting requirements.