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On SDR reconciliation, energy companies find reasons to exceed requirements

At a panel discussion I recently facilitated on swap data repository (SDR) reconciliation, fewer than half the energy industry attendees said they have a solution in place for that function. Still, at least one participant said reconciling data in the SDR is a good idea because it enhances end-users’ understanding of the information being reported and serves as an internal risk mitigation measure. Our October 3, 2014, discussion was part of Deloitte’s Dodd-Frank Compliance Leadership Academy.

January 7, 2015 | Energy and resources

Even for the reporting firm in a deal, there is a possibility of forgetting trades. The counterparty should be reconciling the data, but the reporting party may opt to as well. In one case, a panelist related, the CFTC asked a company to provide information about its position on swaps and swaptions because the counterparty had submitted incorrect trade data.

Where does reconciliation responsibility live within an organization? The reports from the executives in attendance varied when it came to a purpose-built team, finance operations, a back-office environment, or the middle office. One company started its reporting capability in risk management but has since migrated it to the compliance function.

Reconciliation exists along a spectrum, from low to high in the level of effort and complexity it takes. Several of our panel participants shared the approaches their organizations are using, including multiple deal capture systems, sometimes in partnership between compliance and finance in what one person called a “manual, time-consuming process;” daily capture systems; separate systems for different product categories; and a consolidated Dodd-Frank repository. At least one attendee said his organization reconciles specific primary economic terms data and products traded.

These systems must also account for incorrect products. Sometimes that’s a matter of reminding the counterparty that the data is wrong, but it’s still a good idea to have a reconciling capability in place to make certain of what you’re reporting.

Not every organization has the obligation to reconcile, but for those who do, one participant summed up a good reason—“avoiding headaches.”

This publication contains general information only and Deloitte is not, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor.

Deloitte shall not be responsible for any loss sustained by any person who relies on this publication.

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