10/10/2017 – By Gaurav Chandra, Product Manager, AxiomSL EMEA
In the aftermath of the financial crisis in 2009, G20 leaders agreed to reform financial regulations to enhance the resilience and transparency of the derivatives markets. In reaction, the EU passed the European Market Infrastructure Regulation (EMIR) in 2012 with similar aims as the Dodd-Frank Act (DFA) passed in the US in 2010. Given that Switzerland is not a member of the European Union (EU), they had to release their own regulation to protect Swiss market integrity. The Financial Markets Infrastructure Act (FMIA), also known as FinfraG, was adopted by the Parliament in June 2015 and came into effect beginning of 2016. The Swiss requirement is in line with G20 derivative reporting regimes connecting the trading regulation with the international standards, and addressing key changes in the infrastructures of the financial markets, such as central clearing counterparties and trading platforms. This ultimately aims to increase transparency in the Swiss OTC derivatives market, and to reduce systemic and operational risks.
Who will need to report?
All entities incorporated in Switzerland, their foreign branches and Swiss branches of foreign firms are all required to report under FinfraG regime. The FinfraG imposes on counterparties (CPs) a number of obligations including clearing as well as reporting and risk mitigation. As part of the reporting regime, all OTC and ETD transactions must be reported to a Trade Repository (TR) approved by the Swiss Financial Market Supervisory Authority (FINMA) by T+1. The fields to be submitted to Trade Repositories require a combination of CP and trade data information on each transaction.
The key differences and overlaps between FinfraG and EMIR
Although FinfraG and EMIR reporting requirements share a high degree of similarity, we also observe some key differences between the two regimes. While EMIR came into effect with one go-live date on 12 Feb 2014, the Swiss regulation will follow a ‘phased in’ approach with multiple go-live dates which will be six months, nine months or twelve months after the approval of the TRs, starting from October 2017. Under FinfraG, the reporting concept is single sided, meaning that only one of the CPs is obliged to report, whereas EMIR requirement is dual sided that imposes on both CPs to submit reporting. Another difference is the regional scope, where FinfraG applies to firms with registered offices in Switzerland and their foreign branches, as well as Swiss branches of foreign entities, the focus of the EMIR regulation resides within the EU. The CPs need to classify themselves according to the categories presented by the regulator, in order to determine which parts of the regulation apply to them. While there are 3 categories under EMIR: Financial Counterparty (FC), Non-Financial Counterparty (NFC)(+) and NFC(-), FinfraG regulation further subdivides FC into 2 other categories: FC(+) and FC(-); requiring CPs to classify themselves under one of the four categories stated by the regime. Threshold limits that Swiss regulation stipulates are also different to the ones under EMIR.
Like EMIR, FinfraG obligation requires to report all derivatives to a TR, whereby all ETD and OTC transactions have to be reported through their lifecycle. This commonality will allow market participants to leverage the majority of stored EMIR data for FinfraG reporting purposes.
What you need to do now
Constantly-evolving regulatory requirements are now creating a surge of interest among market participants to have a single robust platform that handles multiple transaction reporting requirements all in one place globally. Now, trading firms (financial or non-financial) have to act fast and make a decision between spending endless effort updating in-house technology solutions, or take advantage of third-party solutions that accommodate for industry-wide upgrades without the need for further architectural changes. AxiomSL offers a full solution for current and future Trade and Transaction Reporting requirements globally. AxiomSL’s single strategic platform offers you the flexibility to connect to multiple repositories within the same regime. Its single data-agnostic platform integrates raw data pulled from multiple sources and single strategic platform means the same architecture can be used for multiple regulatory requirements. This greatly reduces operational risks and costs as well as the complexity of compliance.
Existing clients who already benefit from AxiomSL enterprise wide single platform for EMIR reporting, may find it easier to implement their FinfraG reporting obligation. We also offer all the fundamental support and expertise to empower new clients to implement their FinfraG reporting requirements in a timely and efficient manner.
Click to find out more about AxiomSL’s FinfraG solution.