UPI Implementation: The Approaches of Regulators
Throughout 2020 and 2021, regulators across G20 jurisdictions have undertaken revisions to their derivatives reporting rules, with an eye to greater standardisation across jurisdictions and the implementation of lessons learned. Regulators’ experiences with derivative trade data is behind the drive to improve the quality of data available for systemic risk assessment.
While many consultations, reports, and publications have been devoted to the CPMI-IOSCO Critical Data Elements (CDE), and understandably so, given the fine-tuning required to ensure they fit every regulator’s needs, the harmonised Unique Product Identifier (UPI) is also central to ensuring that derivative products are fully identified in an efficient manner.
Unique Product Identifier (UPI) Reference Data System
The UPI identifies derivative products at a level of detail less specific than the OTC ISIN but more specific than the CFI Code. Once the UPI system is live, trade data reports across jurisdictions will all link to a single reference data library for product data, simplifying the work of regulators in accurately determining the details of traded derivative products. The Derivatives Service Bureau (DSB), which maintains the OTC ISIN library, is responsible for the development and implementation of the UPI reference data system, which is expected to be widely available for use from July 2022.
The ROC recently hosted presentations by the DSB on the current status of UPI development to promote awareness among market participants globally. APAC and North American regulators were in attendance to set out how they anticipate UPI implementation to fare once participants are able to register and access the UPI system.
There were a number of core takeaways, as well as a range of comments on how the UPI timeline will intersect with planned and ongoing regulatory changes.
Key Takeaways
- Regulatory staff encouraged market participants to engage with the DSB on gaining access to the UPI system as early as possible to ensure that they can fully link it into their reporting workflow in time for compliance.
- There is confidence in the DSB’s implementation timeline and regulatory staff were comfortable setting out their own actions in anticipation of a July 2022 go-live date.
- UPI implementation for derivatives reporting obligations is expected to take place for the first jurisdictions in Q3-Q4 2022.
At present, outside the EU and UK, the requirement to connect to an external system to generate and obtain product identifiers is an unfamiliar step in the derivatives reporting process. Participants globally should start work early to ensure that they are ready once UPI obligations start rolling in.
- For a summary of different global regulators’ approach to UPI implementation, please click on the tabs below.
The Australian Securities & Investments Commission (ASIC) Approach
ASIC is currently behind schedule for their rules update, for which an initial consultation paper was published and the first consultation period has now ended. In that paper, ASIC discussed additional product data elements in case the UPI was not ready for their final reporting rule changes. This is no longer a concern, owing to DSB’s acceleration of their development and ASIC’s lag. ASIC staff currently expects to publish final rules, including a requirement to report the UPI, in Q1 2022, with the rules effective from Q1 2023.
Hong Kong Monetary Authority (HKMA) Approach
HKMA reporting rules already require a UPI to be reported as soon available. Nonetheless, during Q2/Q3 2021, HKMA intends to issue consultation papers on the implementation of the UPI and the UTI under existing rules. HKMA staff raised the possibility that as part of UPI implementation, HKMA may consider the removal of duplicative product data elements, a potential relief for anyone familiar with the product-driven nature of HKMA reporting rules. That said, HKMA does intend to consult on reporting updates in line with the CDE, so perhaps participants should not hope for too much to begin with. HKMA anticipates implementing UPI reporting requirements during Q3/Q4 2022.
The Commodity Futures Trading Commission (CFTC) Approach
The CFTC’s updated rules for Swap Data Reporting under Parts 43 and 45 of its regulations became effective on January 25th this year, with full compliance required by May 25th 2022. The final CFTC reporting rules fully implement the UPI, and do not explicitly include many core derivative trade data elements expected to be available as UPI reference data. However, as compliance is required before the UPI will be available, the CFTC instructs reporting counterparties to “continue reporting product data elements according to the internal product identifier or product description used by the swap data repository”. Once the UPI is available, the CFTC will issue an order designating it for reporting purposes and setting out a compliance timeline. CFTC staff were unable to provide any additional information on their timeline for designation and compliance following the UPI system go-live, although they are aware of the Q3/Q4 2022 timeline under wider consideration.
Securities & Exchange Commission (SEC) Approach
Security-Based Swap Reporting will be required for the first time from November 8th 2021 following the designation of DTCC Data Repository as the first Security-Based Swap Data Repository. Unless terminated early, for four years following the compliance date, compliance with SEC reporting can be achieved through the same regulatory technical approach as CFTC swap data reporting. As a result, the use of the UPI for security-based swap reporting is expected to follow the CFTC’s designation of the UPI as appropriate for the purposes of swap data reporting.
Ontario Securities Commission (OSC) Approach
OSC staff report that Canadian provincial securities regulators are currently determining how they will update their reporting rules, with the expectation that they will align with the CDE in general, and the CFTC rules in particular (including the UTI, UPI, and CDE). As the consultation process hasn’t yet commenced, it is expected that the requirement to report the UPI in Canada will lag behind other regulators, in part by design to ensure consistency with US requirements.
The European Securities & Markets Authority & the Financial Conduct Authority (ESMA & FCA) Approaches
ESMA published a final report on draft updates to EMIR reporting RTS and ITS which is expected to be closely mirrored by the FCA to avoid disruption for participants with EU and UK obligations. The UPI must be reported once available and endorsed under current reporting rules, so EU and UK UPI implementation may predate broader regulatory updates. The FCA expects to publish a consultation on updates to UK EMIR reporting in late 2021. ROC and DSB intend to host a further session regarding the UPI implementation for European regulators in Q4 2021.
The People’s Bank of China (PBC) and the Japanese Financial Services Authority (JFSA) are currently updating their derivatives reporting rules on the implementation of the CDE, UPI, and UTI. The Monetary Authority of Singapore (MAS) was expected to publish a first consultation on updates to derivative reporting rules in Q2 2021, which we expect to reference UPI implementation alongside planned alignments to CDEs.
Recordings and slides from the ROC-DSB presentations on the UPI are available here, including comments from the PBC, JFSA, ASIC, and HKMA staff at the start of the first session and comments from CFTC, SEC, OSC, and BCSC staff at the start of the second session.
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