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ASIC Basics: Part one

Written by Shane Flatman | Jun 18, 2024 3:26:57 PM

Introduction

The Australian Securities and Investments Commission (ASIC) is rolling out game-changing updates to over-the-counter (OTC) derivative transaction reporting, effective from 21 October 2024. These rules are designed to turbocharge transparency, risk management, and market oversight. But here's the kicker: regulators are now laser-focused on reporting accuracy, with hefty penalties for breaches.

The New Rules at a Glance

1. Expanded Product Coverage

  • Increased Scope: Say hello to a broader range of derivative products! This includes new asset classes like equity derivatives, interest rate derivatives, and credit derivatives. The aim? Comprehensive market coverage and better risk mitigation.
  • Granular Reporting Requirements: Each product type now has specific reporting requirements. Expect to capture key risk and valuation data, enabling regulators to get a precise read on market exposure.

2. Enhanced Data Reporting Standards

  • New Data Fields: More details are needed about counterparty identity, product specs, collateral, and valuation.
  • Revised Existing Fields: Standardised formats and clarified definitions for existing data fields ensure seamless data collection and analysis.

3. Reporting Timeframes

  • Reduced Timeframes: The reporting clock is ticking faster! Depending on the asset class and transaction, trades might need reporting on a same-day or next-day basis.
  • Lifecycle Event Reporting: Any changes to the original transaction, like novations, terminations, or corporate actions, must be reported promptly within a tighter timeframe.

4. Hierarchy of Reporting Obligations

  • Clarified Responsibility: Clear hierarchy defines primary reporting responsibility based on the market participant type (e.g., dealer vs. non-dealer). This eliminates duplicate reporting and clarifies data submission roles.

5. Data Validation and Quality Assurance

  • Comprehensive Validation: Expect to implement rigorous validation checks to ensure data completeness, accuracy, and adherence to standardised formats.
  • Reconciliation Requirements: Participants must reconcile reported data with counterparties and repositories to resolve discrepancies, ensuring top-notch data quality.
  • Exception Handling: Robust exception management processes are required to quickly address and resolve errors, reducing incorrect or incomplete reporting risks.

Implications for OTC Derivative Participants

  1. Enhanced Oversight: Firms can no longer delegate oversight. In-house procedures must be rock-solid.
  2. Compliance Burden: Updating data reporting systems and processes to meet the new standards will likely increase compliance costs.
  3. Operational Changes: Comprehensive data reporting within tighter timeframes demands efficient workflows, stellar data management, operational risk assessments, and validation practices.
  4. Increased Scrutiny: Regulatory bodies will be scrutinising data quality and completeness, necessitating robust internal monitoring.
  5. Cross-Border Compliance: Global operations mean complying with multiple regulatory bodies. A harmonised global compliance framework is a must.