ESMA published the results of a peer review it conducted into supervisory actions of six national competent authorities, or NCAs, regarding their approaches at enhancing the quality of derivative data reported under the European Market Infrastructure Regulation (EMIR). The review assessed that ESMA broadly meets the expectations of the peer review in terms of the overall supervisory approach and the integration of EMIR data within its organization. The review complements the Data Quality Action Plan of ESMA to further improve the quality and usability of derivatives data. The review period was from January 01, 2017 to December 31, 2018. The six authorities include the Netherlands Authority for the Financial Markets, the French Authority of the Financial Market, BaFin, the Central Bank of Ireland, the Cypriot Securities and Exchange Commission, and FCA. In addition, ESMA was reviewed in its role as the direct supervisor of trade repositories.
The review was targeted at national competent authorities that supervise important derivative markets in EU and have key counterparties reporting their derivative trades to EU trade repositories. The majority of authorities had in place a supervisory approach to the EMIR data quality. The French Authority of the Financial Market, the Central Bank of Ireland, and the Netherlands Authority for the Financial Markets are broadly meeting expectations of the peer review regarding overall supervisory approaches to EMIR data quality. In addition to participating in the data quality review these three national authorities undertook onsite inspections, thematic reviews, and developed an internal methodology for data quality breaches by counterparties. However, two authorities lagged behind when it comes to integrating EMIR data quality controls into their overall supervisory approach, which negatively impacted the ability of ESMA to access, assess, and analyze EMIR data. The review also identified good supervisory practices by all these authorities.
In terms of integration of EMIR into the overall supervisory approach of national competent authorities, the peer review identified that the French Authority of the Financial Market and the Central Bank of Ireland fully meet expectations of the review. The Netherlands Authority for the Financial Markets is broadly meeting and BaFin is partially meeting the expectations. The review also identified that Cypriot Securities and Exchange Commission and FCA are not meeting the expectations. In respect of data access, analysis, and assessment, the peer review identified that the Netherlands Authority for the Financial Markets fully meets expectations of the review while the French Authority of the Financial Market and BaFin partially meet the expectations.
ESMA also put forward several initiatives to improve the supervision of data quality in the short and long-term. The short-term initiatives include revising the national competent authorities' annual Data Quality Review exercises and identifying how these authorities can regularly use the data as part of their overall supervisory approach. The peer review also examined the more detailed and focused aspects of data quality supervision by focusing on the intensity of supervision, the frequency of the data quality checks undertaken, and the comprehensiveness of the approach of authorities to sampling. A follow-up review is expected in two years.
Keywords: Europe, EU, Banking, Securities, Peer Review, EMIR, National Competent Authorities, Data Quality, Supervisory Approach, OTC Derivatives, Reporting, ESMA
Scott is a Director in the Regulatory and Accounting Solutions team responsible for providing accounting expertise across solutions, products, and services offered by Moody’s Analytics in the US. He has over 15 years of experience leading auditing, consulting and accounting policy initiatives for financial institutions.
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