Regular IT changes and upgrades across banks is causing regulatory reporting errors, according to Christophe Bonnet, head of the data driven supervision unit, at the French financial markets regulator, AMF.
“Most of the time it is IT issues, they don’t have the right information, they are not able to provide the data on time, or they changed something in their IT system and it caused errors on their reporting,” says Bonnet.
“If you imagine big banks with a lot of activities all around the world, I think it is not exceptional that some of the banks have 50 or 60 software systems involved in their regulatory reporting. Having to deal with changes in software or hardware within their firms, I think this is almost a weekly issue, and if they are not prepared, they can have issues quite regularly,” he says.
On October 17, the European Securiites and Markets Authority (Esma) said that national conduct authories (NCAs) in six jurisdictions required “significant room for improvement” regarding the supervision of data reported under the European Market infrastructure Regulation (Emir).
The review identified the Central Bank of Ireland (CBoI), the Netherlands Authority for Financial Markets (AFM), and the French regulator, AMF as “broadly meeting the peer review’s expectation for NCAs.” Whereas, the UK’s Financial Conduct Authority (FCA), Germany’s Federal Financial Supervisory Authority (BaFin), and the Cypriot Securities and Exchange Commission (CySEC) at the “earlier stage of the supervisory lifecycle in terms of supervising Emir data quality.”
On October 23, the AFM published a response to the peer review acknowledging that although the regulator had fared well in the peer review in comparison to other European regulators, there is a need for “a fundamental evaluation of the current data quality action plan.”
“On the whole of all supervisors, supervision of this reporting obligation is still below the minimum level,” read the press release. “The Dutch regulator is also convinced that the regulators with the largest derivatives markets, facilitated by Esma, play a key role in this.”
For Bonnet, compliance teams must have people capable of understanding changes to regulation as well as the implications from a technology perspective.
“If the compliance team is not aware of what it implies as far as IT systems are concerned, you may face a situation where they give some legal text to IT people saying, ‘please report this for me,’” says Bonnet. “And sometimes there are choices made when implementing systems, which are not the right ones. Because when you are coding something, sometimes you have choices and you don’t really know – they expect this date, the confirmation date, but where do I find it in the system?”
The peer review identified the FCA as having “developed an insufficient supervisory approach to Emir data quality supervision based on the size, scale and complexity of the UK’s derivative market.”
Responding to questions about the UK’s Financial Conduct Authority’s assessment in the peer review and their plans for monitoring Emir data in the future, an FCA spokesperson said in an email that the regulator is “committed to ensuring firms continue to meet their Emir reporting requirements and continue to recognise the importance of having good data quality in order to effectively monitor activity in the derivatives market.”