Markets in Financial Instrument Regulation
Siena is a real-time MiFIR reporting solution.
- For Best Execution Siena records full quote history and all costs & charges incurred on a deal triggering alerts when a client attempts to trade on prices that are beyond the agreed ranges. Compliance begins with the first conversation through to deal execution, whilst also recording all interactions for quotes, even those that may be rejected by you or your customer. All actions are UTC timestamped and associated with a specific user; peer to peer and direct chat can also be captured.
- Siena provides trade and order monitoring and highly flexible controls that can be applied including counterparty, trading group, amount bands, channel and/or time zone to trigger real-time alerts such as limit violations.
- Mid-rate reference prices and volatilities are recorded for all deals and orders across all instrument classes based on the user-definable mid-rate reference price source.
- Siena’s ready-to-deploy adaptors provide connections to major ARM’s and APA’s for trade and transaction reporting.
- There is no need to replace your current treasury and trading systems; you decide if you would like to deploy siena to drive the order workflow, or plug in to your current dealing solution. siena is fully configurable to adapt to your workflows.
Which firms are affected?
MiFID II applies to financial services businesses trading certain products anywhere in the EU as well as those providing services cross-border. This includes investment firms, trading venues, data reporting service providers and third-country firms providing investment services or performing investment activities into the EU.
The following reports are required for MiFID II reporting and Best Execution:
RTS2 - Transparency requirements for trading venues and investment firms in respect of bonds, structured finance products, emission allowances and derivatives.
RTS22 - Reporting of transactions to competent authorities.
RTS23 - Supply of financial instruments reference data.
RTS27 - Data to be provided by execution venues on the quality of execution of transactions.
RTS28 - Annual publication by investment firms of information on the identity of execution venues and on the quality of execution.
RTS27 is made up of nine reports which need to be publicly available every quarter and one annual report.
RTS24 has to be sent to the regulator.
The full list of reports can be found here: https://ec.europa.eu/finance/securities/docs/isd/mifid/its-rts-overview-table_en.pdf
It is worth noting that not all reports are relevant to all institutions; some are for Systems Integrators (SIs) only, whilst others only apply to Trading Venues.
The Siena Regulatory Reporting solution can produce the above-mentioned reports; however we are also able to supply the data to third parties to produce them if required.
European Market Infrastructure Regulation
Under EMIR, EEA institutions must report all derivative transactions to an approved trade repository. In addition, firms trading certain over-the-counter (OTC) derivatives must also post and report variation margin.
Siena’s ready-to-deploy adaptors provide connections to major Trade Repositories and CCP’s
for trade and transaction reporting.
There is no need to replace your current treasury and trading systems; you decide if you would like to deploy Siena to drive the order workflow, or plug in to your current dealing solution. siena is fully configurable to adapt to your workflows.
Which firms are affected?
All European firms, both financial and non-financial, that trade derivatives. EMIR covers entities that qualify for derivative contracts in regards to interest rate, equity, foreign exchange, or credit and commodity derivatives
For EMIR reporting, Eurobase can produce the supply the Trade, Valuation and Collateral Link reports including the Collateral Valuation report if required. The difference between the two is that Collateral Link groups data by collateral portfolio, whereas Collateral Valuation reports at deal level.
Securities Financing Transactions Regulation
The European Commission is increasing the transparency of the securities financing transactions markets, which are not currently covered through other regulations. Although the date has not been set, this regulation is likely to come into effect in Q3 2019.
Securities Financing Transactions (SFTs), represent any transaction where securities are used to borrow cash, or vice versa. This includes repurchase agreements (repos), securities lending activities, and sell/buy-back transactions. In each of these, ownership of the securities temporarily changes in return for cash.
SFTR will require both financial and non-financial market participants to report details of their SFTs to an approved EU trade repository in a similar way to EMIR. These details will include the relevant terms of the repo, stock or margin loan, the composition of the collateral, whether the collateral is available for reuse or has been reused, the substitution of collateral at the end of the day and the haircuts applied.
Similarities with other trade and transaction reporting
The SFTR reporting requirement is dual-sided and requires the provision of a Unique Transaction Identifier (UTI) for each trade and a Legal Entity Identifier (LEI) for their counterparts in the trade.
EMIR requires data in 129 fields from three categories to be collected; counterparty data, collateral data and common data. SFTR requires data in 153 fields across four categories; margin data, transaction data, re-use data and of course, counterparty data.
Which firms will be affected?
The proposed regulation would cover SFT’s conducted by any firms established in the EU, regardless of where the individual branch is. It would also include those SFT’s conducted by EU branches of non-EU firms, and any SFT where the securities used are issued by an EU issuer or by an EU branch of a firm.
Payment Services Directive 2
PSD2 brings with it wide-ranging practical business impact by requiring payments processing organisations to provide secure, open API’s to third parties. siena has inbuilt adaptors and flexible API’s that enable the following additional benefits to be realised in a modern cross-border payments operation:
1. Multi-Currency Cash Forecasting
Siena provides accurate, real-time balances and projections that allows intra-day liquidity to be managed with far greater certainty.
2. Significant Savings on Forex
Siena offers a wide range of rate source connectivity as well as a choice of rate types for lower value payments. For higher value payments this is supplemented by streaming prices with sales desk support.
3. Enhanced Intra-Company Control
PSD2 facilitates the use of virtual accounts which, in turn, can be used to determine regional cash positions. Siena supports any intra-company model ensuring that surplus cash can be reallocated to provide a more efficient use of funds.
4. Real-time Analytics
Analysing customer activity across multiple account providers gives valuable insight and helps spot trends over time. Siena utilises adaptors to aggregate balance and payment information for full in-depth analysis.
Which firms are affected?
As well as consumers, this affects companies that are authorised by a European regulator as either an Account Information Services Provider (AISP), Payment Initiation Services Provider (PISP) or Account Servicing Payment Service Provider (ASPSP).
General Data Protection Regulation
Article 7 of GDPR obligates banks to obtain, document and prove the explicit consent from the data subject if they want to process data.
siena supports the GDPR ‘right to be forgotten’, reconfirmation of client T’s & C’s and auto-lapsing of user access.
Banks can choose to anonymise personal data of an individual with the aim of irreversibly preventing the identification of the individual to whom it relates.
siena encrypts data both within the database as well as on export preventing identification of customer information whether by inference or linkability.
Article 17 requires the deletion of data if it is no longer used for the purpose for which it was originally collected, or if the consent for the storage of data is withdrawn. siena’s data archiving is highly customisable and is easily controlled by appropriately permissioned end users.
Which firms are affected?
GDPR applies to all businesses and organisations established in the EU, regardless of whether the data processing takes place in the EU or not. Even non-EU established organisations are subject to GDPR. If a business offers goods and/or services to citizens in the EU, then it will be subject to GDPR.
Risk Management Reporting
Siena Treasury Manager is complimented with fully integrated, optional modules covering Asset and Liability Management (ALM), Funds Transfer Pricing (FTP) and IFRS9.
Siena ALM is a stress-testing and business planning engine. It enables risk and compliance professionals to set up business plan and stress scenarios to establish the impact on liquidity, IRRBB and Credit Risk Capital (Pillars 1 and 2A).
Out-of-the-box reports include:
- LMM (includes FSA047 & FSA048, plus NSFR)
- LCR and Forecast LCR (out to 90 days)
- Liquidity gap and drill down
- Interest gap and drill down
- ‘Top n’ depositors analysis and ‘Top n’ depositors stress (walk-out)
- Scenario report – all parameters within any given scenario
- Daily cash flow report out to 365 days
- Cumulative mismatch report
- Balance sheet risk management
- Concentration risk (HHI methodology, plus ‘Top n’ per business line).
Siena IFRS9 captures data at a cash flow level of granularity and then applies business rules that determine IFRS9 exposure classification and measurement, impairment and reporting values. These are calculated using expected loss parameters and then present-valued at the ‘effective interest rate’, considering exposure-specific fees and costs.
Out-of-the-box reports include:
- Analyses by business line of expected credit losses,
- Exposure at Default
- Expected Credit Loss
- Loss given default
- Impairment stage
- FINREP Impairment Reporting: 4, 4.1, 7.1, 12.1, 4.3.1, 5.1, 9.1.1
Siena FTP enables the integration of different risk components to the notional interest curve and reports on the difference between FTP and actual interest yielded and demands by assets and liabilities respectively.
Siena FTP produces several reports to manage and monitor FTP costs effectively, including:
- FTP buffer cost
- Weighted average maturity per portfolio and per account
- Past and current FTP rates per time bucket, and their components
- Yield curve
- Credit spread, and other premiums, per FTP curve
Fundamental Review of the Trading Book
The Fundamental Review of the Trading Book (FRTB) is a more detailed methodology on how banks calculate market risk. The framework sets a higher bar for banks to use their own models for calculating capital. It ensures banks are capturing risk events, and firmly creates the line between trading books and banking books.
Trading Book vs Banking Book
The first big change is between the trading book and the banking book. In the past, a form of arbitrage existed that if you ended up with an illiquid position in the trading book you could move it to the banking book and lessen the capital charge. Under the FRTB, this is now heavily controlled and the movement from one to the other has to go through a much stricter governance process. Equally, the capital charge is not allowed to fall as a result of the movement. The incentive is thus reduced to move risky, lesser performing assets on the trading book to the banking book, closing the up to 80% capital reduction that could have been achieved. Future movements under the recast rules will require regulatory approval and limit the ability to securitise risk assets on the trading book to enable a transfer to the banking book.
The second core change is how you model your risks to calculate the capital charge with a much greater emphasis on standardised approaches. This will see more banks using the standardised models as regulatory approval will be needed for firms’ proprietary models. Given that this will be applied at the book level and each book will require management oversight alongside adequate internal controls. This will be supplemented by a floor capital charge if an IMA results in a capital charge below a threshold level based as a percentage (72.5%) of the SA. This will affect the economics of firms trading books and planning needs to be undertaken sooner rather than later to see what the full implications will mean.
Real-time information is a must, with dashboards available to the trading room warning them of potential problems, couple this with controls preventing arbitrage trades between the bank and trading books, where it is appropriate to do so, could mean the difference between smooth running and hefty fines. Agility is critical, but so too is information. Connected systems, with real-time information combining flows from Pricing, Trading, Treasury and Sales functions, could be one way to meet the FRTB challenge.
EMI and PSP Reporting
Payment Service Providers (PSPs), Electronic Money Institutions (EMI’s) and other businesses are required under the PSRs 2017 and Electronic Money Regulations 2011 (EMRs) to provide certain data and information to their relevant financial authority, such as the FCA, on a regular basis.
All PSPs must send statistical data on fraud affecting different types of payment, which is turn is provided by the financial authority to the European Banking Authority (EBA) and the European Central Bank (ECB).
This information helps the authorities to understand whether PSPs have appropriate systems and controls to adequately protect users against fraud and financial crime and to understand the security risks faced by the industry as a whole.
The main reports required are outlined below within their relevant categories:
Financial and activity reports for supervisory purposes:
EM008_01 (balance sheet statement)
EM008_02 (off-balance sheet statement)
EM008_03 (profit (loss) statement)
EM008_04 (statement of changes in equity)
EM008_05 (report on performance indicators and safeguarding of received funds)
EM008_06 (report on granted loans)
EM008_07 (report on funds deposited in a separate account)
EM008_08 (report on the number of employees);
EM008_09 (report on received complaints)
EM008_10 (report on services)
EM008_11 (report on closure or restriction of an account)
Reports for supervision of the implementation of money laundering and/or terrorist financing prevention measures:
EM0010_01 (report on customers with whom business relationships are established)
EM0010_02 (report on significant payment transactions)
EM0010_03 (report on payment transactions related to foreign countries)
EM0010_04 (report on monitoring)
EM0010_05 (report on foreign customers and their payment transactions)
EM0010_06 (report on activities of intermediaries).
In addition to automated reporting, PSPs & EMIs must be ready to submit operational and security incident reports detailing major security, fraud and account blocking incidents. These are as;
OPRISK - Notification of major operational or security incidents
FRAUD - Notification of the suspected fraudulent activities of the payer
BLOCK - Notification of when the PSP/EMI limits access for an account information service provider or a payment initiation service provider to a payment account