The International Swaps and Derivatives Association (ISDA) published a paper that reviews the benefits of digital regulatory reporting (DRR) and takes stock of the initiatives underway in this area.
The paper highlights the work of ISDA and market participants that will enable all firms to implement regulatory reporting rules consistently using the open-source Common Domain Model (CDM). Policy-makers have launched several DRR-related initiatives in recent years that have involved collaboration with market participants. These include pilots and projects by the Financial Conduct Authority (FCA) and Bank of England (BoE), G20 TechSprint initiative, a European Commission (EC) tender to develop machine-readable and executable reporting (MRER) as a proof of concept, and the Bank for International Settlements (BIS) Innovation Hub’s Project Ellipse. The adoption of digital regulatory reporting can bring multiple benefits for both industry participants and regulators, as part of which:
- Regulated entities can automatically execute new and amended regulatory reporting rules using an industry-led standardized interpretation of the regulation as free open-source code.
- Regulators can publish reporting rules as executable code that can be automatically read and interpreted by reporting entities’ IT systems, improving the reporting process across asset classes.
- There will be an industry-led standardized interpretation of the regulation published as code that each firm can implement in its systems.
- Firms will be able to save time, resources, and budget, as they will not need to individually interpret the reporting rules.
- Consistency of how rules are interpreted and implemented across market participants will improve.
- A standardized interpretation of regulations will promote greater alignment between regulators and market participants.
- Improved data quality will enhance regulatory supervision of the markets.
- Reporting can be consistently applied across jurisdictions and used for reporting of different asset classes.
- Digital regulatory reporting could enable regulators to automatically query the underlying transaction data and generate regulatory metrics referencing the standardized data.
ISDA also announced that it has won the Innovation in Technology category in Risk Awards 2022, for the ISDA Standardized Approach Benchmarking initiative. Its benchmarking offering provides users with detailed analysis to support the consistent and accurate implementation of capital models under the standardized approaches for market risk, credit valuation adjustment risk, and counterparty credit risk. The initiative is powered by the in-house technology platform, Perun, which leverages existing standards such as ISDA’s Common Risk Interchange Format. This has been already deployed by 70 banks and 16 regulators.
Keywords: International, Banking, Securities, Basel, Credit Risk, Market Risk, Reporting, Digital Regulatory Reporting, Regtech, Suptech, Common Domain Model, Standardized Approach, Perun, ISDA
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