The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today urged legislative and industry action to address three key obstacles that are hindering achievement of the G20 transparency goals set forth by policymakers in the aftermath of the 2008 financial crisis. 

During a U.S. House of Representatives Committee on Agriculture hearing on the fifth anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), Larry Thompson, Vice Chairman and General Counsel at DTCC stated that while progress has been made since the crisis, the goal of global data transparency – a critical element in understanding systemic risks and interconnectedness, with its absence being a major contributor to the 2008 financial crisis – has yet to be achieved despite the implementation of trade reporting regimes in most major derivatives jurisdictions around the world.

Several factors are driving this challenge, Mr. Thompson added, including a lack of global coordination resulting from the regional approach to trade reporting regimes; a lack of global data standards; and legal barriers to global data sharing among regulators.

Global Coordination

Mr. Thompson noted that the global derivatives reporting regime that emerged following the financial crisis was developed along regional lines, which created an inconsistent set of reporting requirements, due to a lack of coordination among regulators globally. As a result, trade repositories have not been able to reach their full potential as tools for systemic risk oversight.

Global Data Standards

Mr. Thompson also explained the critical need for data standards globally as a means of transforming the data collected by repositories into information that can be used to help identify and mitigate systemic risk. Mr. Thompson explained that through the global adoption and use of standards, data quality would improve. Common identifiers, including Legal Entity Identifiers (LEIs) and consistent data standards such as a common trade reporting vocabulary, will enable regulators to aggregate data, convert it into information, and use it to monitor the build-up of risk in the system.

Legal Barriers to Information Sharing Among Regulators

While data standardization is essential, Mr. Thompson said it will have limited impact if barriers that hinder cross-border data sharing are not also concurrently addressed. Significant legal barriers need to be removed before data can be aggregated at a cross-border level and used for systemic risk oversight.

The Dodd-Frank Act requires swap data repositories to obtain indemnification agreements before sharing information with regulatory authorities.  These provisions have proven to be unworkable and pose a significant barrier to the ability of regulators around the world to effectively utilize the transparency offered by trade repositories. In addition, the indemnification provisions may have the effect of precluding U.S. regulators from seeing data housed outside their jurisdictions. These provisions limit access to and sharing of data among U.S. authorities and regulators globally.

DTCC strongly supports legislation that would resolve issues surrounding the indemnification provisions. On July 14, the House passed the Swap Data Repository and Clearinghouse Indemnification Correction Act of 2015 (H.R. 1847) and DTCC urges the U.S. Senate to move swiftly to support this non-controversial, technical fix.

Mr. Thompson closed, “While market infrastructures such as DTCC stand ready to help address these challenges, the best place for this dialogue to advance is among global regulatory bodies, such as CPMI-IOSCO.  These organizations must act with increased urgency to enact global data standards and develop appropriate governance frameworks to enable cross-border access to timely, accurate data.  The U.S., along with its partners around the world, should continue to play a leadership role in these efforts.”