The European Securities and Markets Authority (ESMA) published the second edition of its Data Quality Report based on data gathered under the European Markets Infrastructure Regulation (EMIR) and, for the first time in 2021, the Securities Financing Transactions Regulation (SFTR) reporting regimes.
The Report presents an analysis of data quality for regulatory and supervisory use and finds that the coordinated supervisory actions by ESMA and the National Competent Authorities (NCAs) have significantly enhanced data quality in 2021.
ESMA’s analysis indicates that, despite these very positive results, certain aspects related to data reconciliation will require more efforts by reporting entities. In particular, the report suggests that data quality could be enhanced if counterparties also used the same data set and the same identifiers for the reported data in their internal risk management processes.
The report identified several prerequisites for further enhancing data quality for both trade repositories and counterparties:
Trade repositories
- timely and complete reporting of regulatory information to the users of TR data,
- accuracy and confidentiality of data reported by counterparties to and stored by TRs, and
- accuracy of regulatory reports submitted to the users of TR data.
Counterparties:
- completeness and accuracy of the reported information, in particular with regards to the reporting of valuation and collateral data,
- timely submission of the reports, and
- consistency of reported information reflected in the reconciliation of data submitted by the two counterparties of the same derivative/transaction.
EMIR data quality
The report highlights the positive results of ESMA’s targeted actions which led to a significant reduction in reporting errors. Compared to the previous year, misreporting of valuations fell was reduced by around 50% of the reporting firms subject to the review.
ESMA carried out several projects demonstrating that the supervised Trade Repositories (TRs), to a large extent, comply with their obligations under EMIR. Despite this, the analysis identified some shortcomings in the data that were provided to the authorities which require TRs to redouble their efforts in this area.
- Reporting Timeliness – While less than 10% of reported derivatives tend to be reported late by the counterparties, more than 20% do not receive updated valuation daily, as required by EMIR.
- Reconciliation – continues to be insufficient as around 5 million of reconcilable derivatives remained unpaired.
SFTR data quality
2021 was the first year of the coordinated supervisory actions between ESMA and the NCAs for SFTR. For this reason, ESMA’s analysis focused on fundamental aspects of data quality, such as the timeliness of reporting, data rejection rates and pairing. Since its start on 13 July 2020, the SFTR reporting regime has shown comparable results to EMIR across all data quality metrics. The key findings include:
- Reporting Timeliness – 10% of SFTs are reported late (after T+1);
- Rejected Data – concerns only 2% of all transactions;
- Reconciliation – the reconciliation rate of loan and collateral data has been low but has increased to around 40% and 30%, respectively.
- The use of the ISO20022 XML end-to-end reporting helped ESMA and the NCAs achieve significant improvements in terms of the quality and accessibility of the data.