Publication of International Reports on Governance arrangements for the OTC derivatives market

News

International reports on governance for OTC derivatives markets are published

18 October 2019

Regulatory News Alert

On 9 October 2019, the Financial Stability Board (FSB) published a report on the governance arrangements for the globally harmonized Unique Product Identifier (UPI).

In this report, the FSB lays out the conclusions on governance arrangements for the UPI and proposes an implementation plan for those arrangements, together with proposals for next steps to establish an international governance body for the UPI.

In order to fulfill one of the key objectives of the G20 reforms to OTC derivatives markets, the FSB developed the UPI which will uniquely identify the product involved in over-the-counter (OTC) derivatives transactions reported to trade repositories. Not only will this help authorities to aggregate data on OTC derivatives transactions by product; it will also facilitate the effective use of OTC derivatives trade reporting data.

The report mainly covers: 

  • The identification of the international governance body for the UPI and the Unique Transaction Identifier (UTI)
  • The set-up of the final key criteria for the UPI governance arrangements
  • The display of conclusions on the components of the UPI governance arrangements and on the allocation of UPI governance functions
  • The clarification of the relationship of the designated UPI service provider to other components of the governance arrangements
  • An elaboration on the merits of having an international data standard for the technical structure and format of the UPI code and of UPI reference data elements
  • The identification of the Legal Entity Identifier Regulatory Oversight Committee (LEI ROC) to become the international governance body for the UPI and UTI (provided that the LEI ROC undergoes adjustments to make it fit-for-purpose for these identifiers by mid-2020).

Considering these technicities, the FSB recommends that jurisdictions start undertaking necessary actions to implement the UPI technical guidance so that it takes effect no later than the third quarter of 2022. This will likely translate to a review of EMIR to incorporate these changes.

On the same day, 9 October 2019, the Committee on Payments and Market infrastructures-International Organization of Securities Commissions (CPMI-IOSCO) published a report on governance arrangements for critical data elements other than the UTI and UPI (CDE governance arrangements).

The report’s main points of attention addresses:

  • The CDE governance arrangements
  • An identification of the international governance body for CDE
  • The different areas (maintenance, oversight, and implementation) of the CDE governance functions
  • The effective allocation of those governance functions to different bodies, i.e. the maintenance body, the international governance body, and authorities
  • An illustration of an implementation timeline: both bodies agree that implementation of CDE across all jurisdictions should be completed within three years from when this report is published.

Both reports aim to improve the resilience of the OTC derivatives market, enhancing its transparency to help in identifying and addressing financial stability risks and detecting market abuse.

 

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