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The clock starts ticking - FINMA approves Trade Repositories for Derivative Transaction reporting under the FMIA
Zurich, 13 April 2017
According to the Financial Market Infrastructure Act (“FMIA”), derivative transactions must be reported to a Trade Repository by one of the counterparties of the transaction (or the Central Counterparty (“CCP”), if a CCP is involved).
In order to satisfy FMIA requirements, transactions need to be reported to a Trade Repository authorized and recognized by FINMA.
On 1 April 2017, two Trade Repositories have been approved by FINMA. This triggers the deadlines concerning the reporting of derivatives transactions. Depending on their FMIA classification, counterparties will have to start reporting open OTC transactions on 1 October 2017, 1 January 2018 or 1 April 2018.
The FMIA (the Swiss counterpart of the European Market Infrastructure Regulation, also known as “EMIR”), and its ordinances FMIO and FINMA-FMIO entered into force on 1 January 2016.
Core elements of the FMIA are regulations concerning infrastructures and conduct rules for trading with derivatives. A particular focus of the conduct rules lies on the duty to timely (T+1) report derivative transactions to an infrastructure newly introduced to Swiss law by the FMIA – the Trade Repository.
The duty to report must be fulfilled at the latest by certain deadlines following the first authorisation or recognition of a Trade Repository by FINMA.
On 1 April 2017, FINMA authorized the Swiss “SIX Trade Repository AG”, Zurich and recognized the foreign “Regis-TR S.A.”, Luxembourg as Trade Repositories for the purpose of transaction reporting under FMIA. This triggered the aforementioned deadlines.
Under FMIA and in deviation to the European regulation EMIR, only one counterparty needs to report the transaction. Allocation of the reporting duty to one of the counterparties as well as the applicable deadline depend on how counterparties classify under the FMIA classification rules.
Which one of the counterparties needs to report?
FMIA introduces the following counterparty categories:
- Financial Counterparties (“FC”): E.g. banks, securities dealers, asset managers, fund management companies
- Small Financial Counterparties (“FC-“): FC’s below a certain threshold of open OTC derivative transactions
- Non Financial Counterparties (“NFC”): Undertakings which are not a FC/FC- with an entry in the Swiss register of commerce
- Small Non Financial Counterparties (“NFC-“): NFC with open OTC derivative transactions below certain thresholds
FMIA allocates the reporting duty based on the following cascade: CCP>FC>FC->NFC>NFC-. This means, that e.g. where a CCP is involved in the transaction, the CCP needs to report, whereas if one of the counterparties is a FC, the FC needs to report. Where both counterparties have the same status, the selling party is required to report the transaction. A transaction between two NFC- does not need to be reported.
If a Swiss domiciled counterparty enters into a transaction with a foreign counterparty, the Swiss counterparty remains responsible for the transaction reporting.
However, counterparties can agree to delegate their reporting duty to the other counterparty or to third parties. It is important to note, that even when delegated (e.g. to a party already reporting transactions under EMIR), FMIA reporting duties are only fulfilled if reported data corresponds to FMIA requirements (not EMIR) and data is reported to one of the above mentioned Trade Repositories approved by FINMA.
By when do transactions need to be reported?
Transactions need to be reported by :
- If a CCP or FC needs to report: 1 October 2017
- If a FC- or a NFC needs to report: 1 January 2018
- In all other constellations: 1 April 2018
Please note that by the above dates new as well as then still open derivative transactions need to be reported.
What needs to be reported?
Any new transaction as well as its modification or termination in a derivative in scope of the FMIA conduct rules must be reported. Intra-group transactions as well as transactions with a counterparty not in scope of the FMIA require transaction reporting as well. FMIA defines an extensive list of data to be reported (max. 79 data fields). It is worth pointing that the FMIA data set slightly deviates from required data set under EMIR (e.g. FMIA does not request information on beneficial owner).
What should counterparties do now?
Counterparties should carefully assess the impact of FMIA reporting duties, considering their FMIA classification as well as classification of their counterparties. In particular, counterparties should assess which Trade Repository to choose, check possible interfaces for a date stream to a Trade Repository and verify whether the required FMIA data set is readily available in their systems.