In the third edition of its annual report, we note ESMA not only covers EMIR and SFTR data quality, but it additionally covers transaction reports collected under MiFIR and provided by National Competent Authorities (NCAs) for the supervision of Data Reporting Service Providers (DRSPs)
The report also explains how ESMA has revised its approach to monitoring and addressing data quality issues, by introducing two main pillars:
- The first pillar is a data quality dashboard with indicators covering the most fundamental data quality aspects
- The second pillar is a data-sharing framework which engages relevant authorities to follow up with counterparties in their jurisdiction upon detection of a significant data quality issue, such as a breach of predefined levels in the agreed set of indicators
The data quality dashboard for EMIR was agreed upon in May 2022 and has since been implemented. ESMA will implement an equivalent dashboard under SFTR in 2023.
The data quality dashboard contains 19 Data Quality Indicators (DQIs) allowing to detect and measure various types of misreporting, including under and over-reporting, inconsistent reporting vis-à-vis the other counterparty, incomplete information in the key fields of the reports, late reporting, abnormal values, and lack of correct identifiers of the counterparties
Included in the report are EMIR Data Quality Indicators and the improvements observed from ESMA supervisory actions in 2022.
- A gradual decrease in the number of reported outstanding derivatives at trade level between two counterparties trading with each other, reached a peak of 26.1% in September 2021
- A consistent decrease in the number of reported outstanding derivatives positions between two counterparties, with the percentage of errors starting at 27.6%, and decreasing to 20.8%
- A rapid decrease in the number of outstanding derivatives with timely valuations and late valuations. The percentage of outstanding derivatives with late valuations started at a relatively high level of 38.3% and declined to a low of 13.2%
- ESMA will continue to monitor the number of outstanding derivatives with missing or abnormal maturities (over 51 years).
- The number of outstanding derivatives with missing valuations. The percentage of outstanding derivatives with missing valuation started at 23.8% in 2019 and by 2022, it was at an average of 14.3% for the year
The report also reminds us that starting in 2022 ESMA was designated as the direct supervisor of the most significant DRSPs. This is due to the cross-border nature of MiFIR data and the need for improved data quality convergence across the EU.
It is further noted that ESMA has started a project aimed at evaluating the consistency between the transaction information published under Article 26 of MiFIR and the transparency information published under Article 20 and 21 of the same regulation. With the objective of the project being to determine if the information that should be present in both is actually found.
As per the report, ESMA is set to continue its expansion efforts in 2023, including the implementation of its new approach to monitoring and following up on data quality issues under EMIR. Furthermore, ESMA is planning to extend this approach to SFTR and maintain the monitoring of the integrity of TR reports, which is a critical aspect in terms of the usability of EMIR and SFTR data.
ESMA is also committed to improving its approach to monitoring data quality issues related to DRSP transactions and transparency data.
These efforts demonstrate ESMA’s ongoing commitment to maintaining high standards of data quality across all areas of regulatory reporting, and its determination to enhance its monitoring capabilities to ensure the continued reliability and accuracy of reported data.