The Monetary Authority of Singapore (MAS) has recently published a consultation paper setting out its proposals for transaction reporting requirements (the Securities and Futures (Reporting of Derivatives Contracts) Regulations 2013 or SF(RDC)R) (the Consultation).
This client alert does not analyse the proposals in detail, but highlights questions for market participants, who are already deep in the midst of regulatory response planning in respect of Dodd-Frank and EMIR, to factor into their transaction reporting project plans.
This Consultation is a continuation of the regulatory reform package which began with the Securities and Futures (Amendment) Act on 15 November 2012. This was Singapore’s response to the G20 commitments with respect to regulatory requirements for OTC derivatives and mandatory clearing for standardised transactions. These proposals also follow on from the response of the US under Dodd-Frank and the EU under EMIR respectively.
The proposed reporting requirements are subject to phased implementation according to:
- asset class (with interest rate and credit derivatives first);
- categorisation of the reporting party; and
- whether the trade is entered into on or after the date that the reporting obligation comes into effect (but there is a backloading requirement).
So far, so familiar to anyone who is grappling with Dodd-Frank or EMIR.
However, it seems that Singapore has chosen to propose a more US, as opposed to EU, style of reporting requirement. For example, there is no proposed reporting requirement for non-financials under a specified threshold and no extension of the reporting requirement to exchange-traded derivatives (although non-financials remain subject to a reporting requirement in respect of modification and termination of transactions they have already reported once over the threshold).
That said, there are also areas where the Singapore proposals diverge from the US requirements, such as whether to require a party to indicate if a trade is entered into for hedging as opposed to speculative purposes. It remains to be seen whether the market regards MAS’s proposals are worth the wait and whether letting other regional regulators show their hand before unveiling their own proposals will prove to be a shrewd move by MAS in the long run.
What is clear is that, for entities who are already dealing with reporting requirements in other jurisdictions, the differences between the Singapore proposals and similar requirements in other regions, particularly the EU, could lead to additional operational complexity and practical issues.
Key Issues to Consider
Differing ongoing monitoring and notification requirements
- Singapore non-financial entities (or potentially even Singaporean branches of US or EU non-financial entities) will be subject to a local threshold requirement. Clearly, for these types of entity this presents yet another threshold to calculate, measure and monitor.
- The Consultation does not mention intra-group transactions. So query whether the reporting requirements apply to intra-group transactions at all?
- If not, do intra-group transactions need to be taken into account in threshold calculations? Significant clarification is required on this and other issues around the threshold calculation as this could be the pivotal question in determining whether or not reporting requirements apply.
Group/regional aggregator concerns
- The differences between regional approaches to regulation expose large groups, in particular, to the risk of conflicting treatments in multiple jurisdictions.
- Large groups routinely transfer risk on a cross-border basis, centralising it in global or regional risk aggregators. If a group has a risk aggregator located in Singapore, these arrangements will need to be reviewed in the light of this and further forthcoming MAS consultations on derivative market reform.
- The Consultation briefly outlines the idea of MAS adopting a “substitutive compliance” approach in cases where there would otherwise be duplicative regulation (but this will depend on international consensus). If substitutive compliance is a solution, when can it be relied upon?
- If the regimes’ reporting requirements commence at different points in time, will parties have to comply with the earliest without recourse to substitutive compliance?
- What is the situation where the counterparties are subject to different reporting requirements (e.g. with respect to timing, phase-in etc)?
Acting as agent
- Some entities are not currently subject to reporting requirements, as they do not act as principal to any trades. Will these be brought into scope in Singapore by virtue of acting as agent?
- Should there be active lobbying for MAS to designate jurisdictions in which principals already have reporting requirements as relevant reporting jurisdictions to minimise this potential issue?
- Would brokers or agents located in Singapore be more reluctant to act for non-financial specified persons (NFSPs) (or charge higher fees) given that they could incur additional regulatory obligations in doing so?
Comparison of differing regulatory requirements
- Can a trade repository outside Singapore be used to satisfy Singapore reporting requirements?
- To which foreign trade repositories will MAS grant a licence?
- Will MAS grant licences in time given the accelerated proposed reporting timescales and the fact that reporting and registration/authorisation of trade repositories in the EU in particular is an area in which the timetable is slipping?
Issues for NFSPs to consider
Even at its most simplified level, NFSPs would have to report over 35 data fields. Some of these may reflect those in the US and the EU (e.g. timestamp, Legal Entity Identifiers etc). But others, such as mark-to market and collateral value involve a value judgement and may not be based on the same criteria.
- A non-Singaporean party should be cautious before agreeing or representing that any data it provides to a Singaporean entity would actually meet the local requirements.
The Consultation Paper is available here.