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  • Writer's pictureNatarajan Venkatasubramaniam

Firms Grapple with Regulatory Fatigue: CFTC's Approval of Proposed Amendments to Part 43 and Part 45 Requirements Compound Existing Regulatory Burden



Let’s Set the Context:

In the current landscape, nearly every financial institution is directing its attention toward a triad of critical activities:


  • Comprehensive Remediation of Regulatory Reporting Infrastructure: A predominant focus lies in the extensive remediation and modernization of their regulatory reporting infrastructure. This concerted effort is twofold – firms are either addressing existing regulatory findings or proactively reviewing and addressing their existing issues in anticipation of potential regulatory scrutiny. This strategic move reflects the commitment of financial institutions to enhance their compliance and reporting capabilities.

  • Meticulous Preparation for the UPI Go-Live (Effective January 29, 2024): The impending launch of the Unique Product Identifier (UPI) on January 29, 2024, stands as a pivotal milestone. Financial entities are diligently preparing to ensure a seamless transition and compliance with this regulatory requirement. Following the UPI implementation, the focus will swiftly shift towards preparing for global rewrites and REFIT initiatives. This proactive stance underscores the industry's dedication to adapting swiftly to evolving global standards.

  • Vigilant Readiness for Varied Regulatory Mandates: Besides UPI and global rewrites, institutions are maintaining a state of preparedness for a spectrum of other regulatory obligations. These include but are not limited to, T+1 readiness, the culmination of BASEL end-game requirements, and various other regulatory mandates. The multifaceted approach ensures that firms remain compliant and adaptable in a constantly evolving regulatory environment.


In addition to the existing regulatory landscape, it's essential to acknowledge that financial institutions are contending not only with established rules but also with impending regulations that are yet to be finalized by global regulatory authorities. For instance, in the year 2023, the U.S. Securities and Exchange Commission (SEC) concluded its review process, finalizing eight sets of rules, while another eight remain pending finalization. This dynamic environment significantly burdens firms as they navigate the intricacies of existing and forthcoming regulations.


On December 15, 2023, the Commodity Futures Trading Commission (CFTC) approved the proposed amendment to the trade reporting requirements outlined in Part 43 and Part 45. Notably, this proposed amendment does not encompass the forthcoming ISO 20022 changes. This development raises the question of whether additional regulatory adjustments are on the horizon. The answer to this query remains to be determined, as it hinges on future regulatory decisions and developments. As financial institutions continue to adapt to the evolving regulatory landscape, only time will reveal the extent of forthcoming changes and their implications.


Summary of the Proposed Amendments:

The proposed amendment seeks to enhance the current trade reporting requirements as specified by the Commodity Futures Trading Commission (CFTC) under Part 43 and Part 45. Intending to standardize data elements across various jurisdictions to promote consistency and transparency in trade reporting, the following are the proposed changes:


  1. Expansion of Technical Specifications: The CFTC Technical specification will be augmented by adding 49 new data elements. This expansion will result in a comprehensive dataset encompassing 177 data elements, up from the current 128. This amendment will add new elements and refine the existing data elements to improve the quality of the reported data.

  2. Expansion of the use of UPI across asset classes: The Unique Product Identifier (UPI) will be extended to encompass additional commodity asset classes. This extension is designed to facilitate the uniform identification of products across different commodity markets. Additionally, the specification now requires firms to submit two UPIs, one for Part 43 and another one for Part 45, under certain circumstances.


Expansion of Technical Specifications:

The Commodity Futures Trading Commission (CFTC) has recently incorporated a significant expansion of data elements into the technical specifications of both Part 43 and Part 45. This expansion encompasses a total of 49 new data elements, each with its own distinct purpose and relevance.


Among these 49 newly introduced data elements, a noteworthy subset of 19 data elements is derived from the technical guidance provided by the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) for critical data elements (CDE). These data elements span several vital categories, namely Custom Baskets, Notional Amounts and Quantities, Prices, and Products. The inclusion of CPMI-IOSCO CDEs underscores the international dimension of regulatory data requirements and aligns these particular data elements with global best practices.


Conversely, the remaining 30 fields within this comprehensive expansion are meticulously defined by the CFTC itself. These fields exhibit a deliberate divergence from the CPMI-IOSCO technical guidance, rendering them specific to the jurisdiction governed by the CFTC. These 30 data elements span across various categories, encompassing Clearing, Counterparty Information, Notional Amounts and Quantities, Prices, Products, and Transaction-Related data. This distinctiveness reaffirms the CFTC's commitment to tailoring regulatory reporting requirements to its unique regulatory framework and jurisdictional needs.


In summary, introducing these 49 new data elements reflects the evolving regulatory reporting landscape and the CFTC's ongoing efforts to enhance data granularity, transparency, and relevance within the derivatives market. This comprehensive expansion balances global harmonization and jurisdiction-specific considerations, ultimately contributing to more informed and effective regulatory oversight.



Expansion of the use of UPI across Asset Classes:

The Unique Product Identifier (UPI) framework is set to undergo an expansion to encompass additional commodity asset classes, marking a significant development in regulatory standards. On February 16, 2023, the Commodity Futures Trading Commission (CFTC) took a crucial step by designating UPIs for swaps within various asset classes, including credit, equity, foreign exchange, and interest rate derivatives, with a compliance deadline of January 29, 2024, underlining the regulatory commitment to timely implementation.


The broadening scope of UPI requirements triggered a parallel consideration – that of geographic masking for specific commodity contracts. Under the proposed rules, entities will be obligated to furnish a geographically masked UPI for Part 43, but only for contracts whose underlying assets do not align with any of the following categories:


A. Publicly Reportable Swap Transactions: Contracts referencing assets delineated in Appendix B of the CFTC's technical specifications fall under this category. It is essential to note that these contracts have clear and public reporting requirements.


B. Economically Related Swap Transactions: Contracts economically linked to assets described in Appendix B of the CFTC's technical specification also warrant the provision of a geographically masked UPI. This approach ensures comprehensive coverage of related transactions.


C. Swap Transactions Executed on Designated Platforms: Publicly reportable swap transactions executed on or in accordance with the rules stipulated by swap execution facilities or designated contracts markets are another focal point. These transactions are integral to market transparency and necessitate specialized UPIs.


For contracts meeting these criteria, Part 45 will require a distinct UPI that preserves the geographic detail of the underlying assets. This distinctive approach underscores the CFTC's commitment to aligning UPI requirements with the specific nuances of commodity contracts, thereby facilitating robust regulatory oversight and transparency.


Compliance Timeline:

On December 15, 2023, the Commodity Futures Trading Commission (CFTC) officially approved the proposed amendment to both Part 43 and Part 45, marking a significant regulatory milestone. Concurrently, the CFTC initiated a 60-day comment period, scheduled to conclude on February 26, 2024. This period serves as a crucial opportunity for stakeholders and industry experts to provide valuable feedback and insights on the proposed changes.


Upon the completion of the comment collection process, the CFTC is poised to take the next steps in the regulatory journey. Specifically, the commission is anticipated to publish the final rules in the Federal Register within a subsequent time frame of 60 to 90 days. This publication marks the culmination of the rulemaking process and sets the stage for the official implementation of the amended regulations.


Recognizing the importance of providing ample preparation time for market participants to adapt to the impending changes, the CFTC has put forth a proposal regarding the compliance date. According to this proposal, the compliance date for the rules outlined herein will be set at 365 days following the publication of the final rules in the Federal Register. This extended compliance timeline underscores the CFTC's commitment to ensuring that market participants have a reasonable and sufficient window to align their operations with the updated regulatory framework, promoting a smooth transition and adherence to the new rules.


How can RegEdge help you:

Our comprehensive knowledge of cross-jurisdictional trade and transaction reporting, compliance, and other regulatory requirements assists clients in traversing the complex regulatory landscape to achieve compliance, improve efficiency, and facilitate sound decision-making. Our Services include and are not limited to the following:

Current State Assessment and Documentation

  1. Regulatory reporting Assessment

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  6. Operating Model and Governance Definition


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