Compliance Briefing — September 17, 2020

Executive briefing: On 17 September 2020 the U.S. Commodity Futures Trading Commission (CFTC) approved a comprehensive rewrite of its swap data reporting framework to bring Parts 43, 45, and 49 closer to CPMI-IOSCO harmonisation goals, close known data quality gaps, and recalibrate industry burden. Swap dealers, major swap participants, derivatives clearing organisations, and swap execution facilities must overhaul reporting architectures ahead of the May 2022 compliance date (with certain obligations extending to December 2022) to avoid enforcement risk.

The final rule issued in September 2020 replaced piecemeal amendments with an end-to-end redesign that touches identifiers, lifecycle event capture, validations, governance, and public dissemination. The reforms affect all major OTC asset classes and cleared swaps, and introduce CFTC-led verification loops with swap data repositories (SDRs) to improve accuracy and timeliness. The CFTC aligned its approach with global standards for Unique Transaction Identifiers (UTIs), Unique Product Identifiers (UPIs), and critical data elements, while retiring the U.S.-specific Unique Swap Identifier (USI) structure. Market participants now face detailed field lists, explicit tolerances for late or corrected reporting, and requirements to backload missing lifecycle data.

Reporting changes

The rewrite codifies a unified data model that standardises the message set across real-time public reporting (Part 43) and regulatory reporting (Part 45). Key changes include:

• Identifier alignment: Mandatory adoption of UTIs for all new swaps, with the generating party hierarchy ordered as: electronic trading platform, clearing house, then reporting counterparty. UPIs become the required product taxonomy once the CFTC designates an issuing authority, and the legacy USI is phased out for new activity.
• Streamlined critical data elements: The Commission reduced and normalised required fields, defining 128 critical data elements with precise formats (e.g., ISO 20022 date/time, LEI-only counterparty identifiers, ISO currency codes, and fixed enumerations for asset-class-specific terms). This shrink-wrap approach aims to eliminate ambiguous free-text fields that previously hindered cross-SDR aggregation.
• Lifecycle event handling: The rule clarifies whether events require new UTIs (e.g., clearing, compression, post-trade allocations) or linkage to existing UTIs (e.g., novations, partial terminations). It distinguishes between event and state data, requiring state data snapshots following material lifecycle events to ensure SDRs maintain up-to-date positions.
• Verification with SDRs: Reporting counterparties must confirm the accuracy of data residing at SDRs. SDRs must issue verification notices and track counterparty responses, creating an auditable feedback loop for corrections within strict timeframes.
• Public dissemination changes: Real-time reporting delays shift to a block trade/special size regime with updated notional caps. Certain bespoke or illiquid instruments gain calibrated delays to mitigate information leakage while preserving transparency.
• Revised error correction: The rewrite introduces explicit obligations to correct errors as soon as technologically practicable, with a hard outer limit of three business days once identified (absent extenuating circumstances). SDRs must support error reporting channels and provide rejection codes with remediation guidance.

The Commission’s approach mirrors peer regulators’ post-EMIR Refit practices, particularly the focus on ISO-based data standards, UTIs, and event-triggered reporting. Firms that previously treated Part 43 and Part 45 as distinct technical tracks must now harmonise their data models and control frameworks.

Compliance dates

The Commission staggered obligations to give the industry time to retool. The Federal Register publication on 25 November 2020 set the following milestones:

• Effective date: 25 January 2021 (60 days after publication).
• Primary compliance date: 25 May 2022 for Parts 43, 45, and 49, covering most new field requirements, UTI adoption, verification workflows, and revised real-time dissemination.
• Deferred compliance: 5 December 2022 for requirements tied to CFTC designation of a UPI service provider and certain cross-regulatory harmonisation elements.
• Transition rules: Open swaps entered before the primary compliance date must be updated to new data standards upon the first reportable lifecycle event after 25 May 2022. Certain fields (e.g., collateral and valuation data) retain prior requirements until specifically superseded.

Firms should also note parallel CFTC actions—such as amendments to SDR governance and technical standards—that became effective on the same timeline and require coordinated implementation to avoid inconsistent message schemas.

Operational impacts

Implementation requires coordinated changes across front, middle, and back office functions:

• Data architecture: Firms must map new critical data elements to authoritative systems, implement ISO 20022-compliant date/time stamps, and ensure Legal Entity Identifiers (LEIs) are validated against the Global LEI System. Legacy text fields must be replaced with enumerated values to avoid SDR rejections.
• Workflow redesign: UTI generation must follow the prescribed hierarchy, including negotiation between counterparties when both could generate the identifier. Clearing and compression vendors need to propagate UTIs to all downstream parties to avoid breaks.
• Controls and monitoring: Daily verification with SDRs adds a new control layer. Firms should deploy reconciliation between internal books-and-records and SDR acknowledgements, and track aging of unresolved rejections to meet the three-business-day correction window.
• Documentation updates: Counterparty agreements and rulebooks may require amendments to reflect UTI roles, data sharing, and correction obligations. Internal procedures should codify event-type determinations (e.g., distinguishing terminations from amendments) to prevent misreporting.
• Testing strategy: Regression and conformance testing against SDR certification suites are critical. Firms should prioritise high-volume asset classes and complex products (e.g., swaptions, cross-currency swaps, equity variance swaps) where enumerated data values and valuation measures are nuanced.

Vendors providing middleware, confirmation platforms, and SDR connectivity must update message translators and APIs to ingest the new critical data element list. Buy-side firms relying on delegated reporting should revisit service-level agreements to ensure coverage of verification responses and remediation timelines.

Data quality and governance

The CFTC stressed that accurate reporting is foundational for systemic risk monitoring. The rule introduces:

• Periodic performance reviews: SDRs must publish rejection statistics and work with reporting entities on data quality remediation plans.
• Validation tiers: SDRs must apply primary validations (schema and formatting), contextual validations (e.g., asset-class consistency checks), and inter-field validations (e.g., notional currency alignment with settlement currency).
• Recordkeeping continuity: Reporting entities must retain records supporting reported values (such as valuation methodologies and collateral calculations) and make them available to the CFTC upon request.
• Cross-border coordination: The rule permits substituted compliance where the CFTC determines foreign regimes are comparable, but firms remain responsible for ensuring outbound data meet CFTC standards when reporting to U.S.-registered SDRs.

High data quality is also expected to improve public transparency: more granular notional caps, clearer taxonomy, and better timestamp precision allow market observers to gauge liquidity and price formation without revealing proprietary strategies.

Practical readiness checklist

To meet the compliance timeline, consider the following actions:

1. Assign accountable executives for reporting accuracy and establish a cross-functional steering group.
2. Catalogue all reportable products and map them to UPIs and asset-class-specific fields once designated.
3. Upgrade middleware and trading/clearing interfaces to support UTI assignment and propagation.
4. Implement automated reconciliations between internal ledgers and SDR confirmations, with dashboards for aging error queues.
5. Rehearse incident playbooks for re-reporting and corrections to stay within the three-business-day limit.
6. Refresh training for front-office, operations, and compliance teams on event classification and reporting obligations.

Because the CFTC set explicit remediation expectations, early dry-runs with SDR test environments will reduce the risk of a compressed remediation window during production cutover.

For further detail, see the CFTC’s September 2020 press release announcing the final rules and the Federal Register publication of the Swap Data Recordkeeping and Reporting Requirements, which together outline the rule text, compliance staging, and supervisory intent.

Sources: CFTC Press Release 8263-20 announcing the final swap data reporting rules (17 Sep 2020); Federal Register publication of the Swap Data Recordkeeping and Reporting Requirements (25 Nov 2020).

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