DTCC Fine Seen as Sign European Regulators are Watching

Aite Group analyst Virginie O'Shea says the European Securities and Markets Authority's (ESMA) fining of the Depository Trust and Clearing Corporation (DTCC) is the regulator making it clear that it will not tolerate poor data quality, and an encouragement to trade repositories to invest more in technology and infrastructure.

The regulator announced on March 31 that it had fined the DTCC €64,000 for "negligence" in failing to provide timely data. The DTCC is the largest repository receiving reports for over-the-counter derivatives trades under the European Market Infrastructure Regulation (EMIR).

"ESMA wanted to pick out the biggest fish in the market to show they are monitoring data," says O'Shea. "There has been a lot of doubt in the market whether any of the regulators will take action when it comes to data quality.

"This fine is not as high as it could have been. I think it's really intended just to set a line in the sand for the industry as a whole by saying, 'We are going to be checking the data quality, this is an important factor, we haven't done all of this for no reason.'"

A routine review of EMIR was recently undertaken during which ESMA extensively criticized the reported data and suggested more fields and more specific prescriptions.

"There are no standard fields across the different repositories," says O'Shea. "The data is slightly different, which makes it tough—if not impossible—for the regulator to aggregate that information."

According to information supplied to Inside Reference Data by another source, the average number of fields required by the DTCC for different asset classes with regard to EMIR reporting is 600. Regis-TR requires 140 and UnaVista 103.

"So, by targeting the repositories themselves, they are perhaps getting them to take on the role of a 'regulator' for the industry, in terms of setting benchmarks for what reporting entities should be sending in—sending it in the correct format, not sending massive great PDFs, and so on," says O'Shea.

Data quality is a problem for the repositories, she says, because the data they get from financial institutions isn't perfect.

"This is challenging especially for those [entities] doing delegated reporting for their clients. They are stuck in a tough place because the clients don't send the data in a timely manner or they get the data from a counterparty that may not have liability or responsibility for that data. It's an issue for the whole industry and it has gone on for a long time."

O'Shea says it is important that reporting entities and repositories get all of this right because this particular fine could be just the beginning and ESMA is possibly setting a precedent for how regulators will treat infractions under the Markets in Financial Instruments Regulation.

She concludes: "Data quality is something people talk about a lot, but I don't know that they have really tackled it. A lot of data management staff in banks have been let go because of the massive cuts that are going on and the spending that has to happen on compliance and risk management teams."