LONDON, March 13 (IFR) - The Financial Stability Board has
proposed a new framework for the governance of unique
transaction identifiers that are used for reporting
over-the-counter swaps to trade repositories.
Under new rules stemming from the 2009 G20 agreement, all
OTC derivatives must be reported to registered trade
repositories. With reporting requirements differing across
jurisdictions, harmonisation of the codes used to identify
trades and ongoing governance of UTI standards have become
crucial in ensuring that regulators have access to a global view
of risk in the US$544trn OTC derivatives market.
In its latest consultation, the FSB is seeking market
feedback on which bodies should be responsible for a range of
UTI oversight activities. That could include one or a
combination of CPMI and IOSCO, regulatory authorities, the FSB,
and international standardisation bodies.
At the heart of the debate is the quest for a balance
between the decentralised nature of UTI generation and the
pre-existing framework for legal entity identifiers, which feed
into the UTI to pinpoint the generating entity.
The FSB proposes that oversight of UTI data standards and
drafting of technical specifications could be undertaken by CPMI
and IOSCO, which published technical guidance on the
harmonisation of UTIs in February. The bodies could translate
those data standards into necessary technical specifications,
according to the FSB.
"As the drafters, the members of the CPMI and IOSCO best
understand the purpose and policy considerations that support
the UTI data standard and the rest of the UTI technical
guidance, and would quickly recognise if and when the technical
specifications diverge from its intended purpose," the FSB said
in its report.
The FSB notes, however, that development of technical
specifications is not the primary skill set of CPMI, IOSCO or
the FSB itself and would represent a move away from the LEI
framework, where data specifications are drafted and governed by
an international standardisation body.
An alternative would be to task an international body with
the role, though governance structures of such bodies only allow
for indirect or limited influence by authorities, something the
FSB would like to see addressed before making such a
"Involvement with the UTI data standard would have to be
conditioned on regulatory authorities' retaining control over
regulatory and policy aspects of the UTI. The assumption that
such an arrangement can be worked out with any international
standardisation body is important to the FSB's recommendation,"
the regulator noted in its consultation.
The FSB also asked market participants to comment on whether
the International Organization for Standardization (ISO) is a
preferred candidate for maintaining UTI data standards, or
whether there are viable alternatives.
ISO is widely viewed as a natural fit for the role as it is
already performing a similar task for LEI data Standards.
Despite the significant presence of ISO within the financial
services community, not all regulators and authorities are
members of the ISO or its committees.
Possible alternatives include the Object Management Group -
an international, open membership, non-profit consortium that
has been involved in a range of financial standardisation
activities including the Financial Industry Business Ontology
and the Financial Instrument Global Identifier.
The FSB proposes that responsibility for implementation of
technical guidance, communication and education should lie with
authorities given their supervisory and oversight powers that
would enable coordination across all stakeholders.
"Because UTIs will be issued in a decentralised manner and
because authorities have a greater degree of direct regulatory
oversight over the generating entities and other stakeholders
than any other entity, authorities are best positioned to
perform this function," said the FSB in its report.
UTI governance arrangements could, over time, diverge from
criteria at inception, however, requiring governance
arrangements to be adapted at a global level. The FSB notes that
CPMI, IOSCO or the FSB itself may be best placed to take
responsibility for ensuring that arrangements continue to
fulfill the globally-agreed criteria.
The FSB proposes that maintenance of UTI technical guidance
after initial publication is assigned to a body created or
designated by the FSB, CPMI or IOSCO, though notes that
technical guidance should not need a frequent review.
"A separate body, formed under the FSB, could be convened to
meet, when and as needed, to consider updates to UTI technical
guidance, including costs and benefits of such updates," notes
The regulatory body, chaired by Mark Carney, governor of the
Bank of England, is seeking market feedback on a range of
proposals and options in a consultation that closes on May 5,
for final recommendations to be adopted by the FSB later this
(Reporting by Helen Bartholomew)