MRRA: The devil's in the detail

By Rebekah Tunstead | 22 January 2020

There is a disconnect between associations and market participants over the use of a Master Regulatory Reporting Agreement (MRRA) for European Market Infrastructure Regulation (Emir) and Securities Financing Transactions Regulations (SFTR) reporting.

Some say the standard format of contract will make agreements easier. Others suggest the document is overly complex and too long to be widely adopted.

“For a bank to implement something like that, no matter how great it looks on paper you need budget for it,” says an advisory compliance consultant at a bank. “So, the question that will be asked if someone says, ‘can we implement this?’ is going to be ‘how much does it cost?’ And then you’ll have to explain, ‘well, actually we have already got something, so we are actually asking to repaper clients.’ I pretty much can rest assured that will be a no from everywhere.”

“It is a great concept, but it is ivory tower thinking. Banks won’t use it,” he says.

On December 19, 2019 the International Swaps and Derivatives Association (Isda), Futures Industry Association (FIA), International Capital Market Association (Icma), and International Securities Lending Association (Isla) published the MRRA with the aim of providing a standard format of contract for firms offering or coming under mandatory delegated reporting.

The group of associations launched a consultation on the topic on August 14, 2019, with the deadline for feedback to be submitted set to August 23. In the request for feedback document, the associations said they were conscious that the timeline to prepare and publish the agreement was “very challenging”.

Emir Refit was created to reduce the burden of dual-sided reporting for non-financial counterparties which come under the clearing thresholds (NFCs-). Instead of an NFC- reporting its side of an OTC trade, the responsibility will now pass to its financial counterparty from June 18.

There will be some operational considerations that financial counterparties will need to consider in preparation for that date, says Andrew Bayley, director, data and reporting, Isda.

“There have been a few meetings with members to talk about what topics and operational challenges the industry needs to be considering, such as the handling of an NFC moving between being categorised as an NFC- to NFC+ [an NFC above the clearing threshold] and how that is going to be handled. How are existing trades that are live as of June 18, 2020 to be reported and processed going forward?” he says.

But the number of NFCs- that will seek delegated reporting is under question. There is a delegated reporting opt out for NFCs- that have already invested in a reporting system and wish to continue to report themselves.  

“If you are a non-financial firm reporting under Emir, you’ve already gone through that testing process and that overhead, and the operational aspect of resourcing to support the regulation,” says Catherine Talks, product manager, UnaVista. “If you stick solely to the mandatory regulation, then a lot of that reporting framework becomes more obsolete and you go into much more of a reconciliation view. Whilst you are allowing a firm to report on your behalf, you should reconcile those reports and make sure that you agree with them.

“I think there will be some firms who will look to utilise the opt out. How wide that will be will become more apparent as we get closer to Emir Refit going live,” she says.

For SFTR, the buy-side will be responsible for reporting for alternative investment funds (AIFs) and undertakings for the collective investment in transferable securities (Ucits) funds that they manage from October 11. Firms will be responsible for reporting for their smaller NFCs that don’t have the resources to have a regulatory reporting function from January 11, 2021.

To comply with SFTR firms must input data into 155 fields across three reports. In comparison Emir requires 65 fields.

The MRRA is 47 pages long. The contract section is 24 pages, and there is a derivatives questionnaire to establish data points of nine pages and 10 pages for SFTs.

“It is a way of documenting [delegated reporting agreements] in a standard format, so you don’t have to redraft new documents on a bi-lateral basis and there is not a massive legal overhead in creating it, but it does go through and is quite closely aligned to criteria in the regulation,” says Talks.

But the consultant says delegated reporting agreements are usually between two and four pages.

“[Reporting agreements] highlight what the risks are and that the risks remain with the counterparty that has a reporting obligation not the firm offering delegated reporting,” says the consultant. “It is pretty straightforward.”

The cost to build new data points and do any repapering for existing delegated reporting agreements will far outweigh any benefits to adopt the standard agreement, according to the consultant.

“[If] you go to a bank and you say, ‘I want to add one field to my client data field,’ it’s a big effort, it’s a big ask, it’s not just like adding a new column in an Excel spreadsheet. The idea that there may be 50 new data points that came out of the MRRA document. I just don’t see that happening.

“[All the data points] have to be maintained. You have to create STP processes to consume those data points.”

However, Bayley says the agreement was formed to be all encompassing of the regulations.

“The Master Regulatory Reporting Agreement (MRRA) used the original Isda/FIA Delegated Reporting Agreement as a starting point and expanded it to capture the new mandatory reporting requirements under Emir, as well as the new reporting requirements under SFTR. The MRRA is structured to allow users to select the provisions that are relevant to their trading relationship,” says Bayley.

While Bayley says any necessary technology updates will depend on how firms’ existing reporting systems and processes are set up, UnaVista’s Talks says the development of legal tech solutions to support the agreement will be contingent on industry uptake of the framework.  

“People won’t invest in technologies when it is not widely adopted, and we really don’t know what the adoption rates are going to be yet,” she says.

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