European Union ... Of Data Regulation

In Europe, identifying securities and transactions, clearing transactions and reporting that information, are all areas currently seeing significant shifts due to regulation or new utility platforms. In this issue, Joanna Wright examines all three of these areas.

Starting with identification, and tracking the specifics of legal entity identifier (LEI) registration as they are being implemented in Europe under the direction of the European Insurance and Occupational Pensions Authority (EIOPA), it becomes evident just how much the LEI plays a role in compliance with certain newer regulations such as Solvency II. As Mark Davies of Avox, the business entity data vendor, points out, LEIs must be integrated into firms' internal systems as a fundamental part of data management. "Systems" implies a bit of everything, including clearing and reporting.

Target2-Securities (T2S), the platform for centralized securities transactions settlements to cover all European Union markets, has had a journey to completion similar in length to that of the LEI. With LEIs already being issued, T2S has a little further to go, but by the time all markets are migrated to its platform in 2017, says Marc Bayle of the European Central Bank, costs for settlement will be lower as a result, because the platform homogenizes settlement practices.

All these developments speak to an eventual transformation of data operations in the European Union, and the consolidation of settlement for 24 European markets that Bayle foresees will be a big part of that. Central securities depositories (CSDs) will begin to compete, and more firms could start setting up their own CSDs, as BNY Mellon has.

The third piece of these European changes, reporting the data, has already just passed a key milestone. Annex IV, the phase of the European Union's Alternative Investment Fund Managers Directive (AIFMD), under which 340 data points must be reported, had a reporting deadline October 31. So even as the aforementioned regulation and standards initiatives aim to better identify transactions, clear them and track the results, AIFMD will generate more data to consider.

A fund administrator executive, quoted anonymously in "Taking Aim at AIFMD," says there are concerns about how AIFMD reporting really is going to work. Data has to be aggregated from many sources, the executive noted, and alternative fund managers may have an easier time collecting all of it, since more of it is kept in-house. Another reporting deadline, December 31, will follow, and uncertainties remain, such as the ability for non-EU firms to use marketing passports to report under AIFMD.

Although reporting data is a separate step from placing identifiers on it, or the generation of the data through the securities clearing part of the process, will AIFMD's effects run counter to the intentions behind EIOPA and T2S? Taking the pulse of these European changes makes it seem like reporting could get more fragmented and complicated even if everything taking place with data beforehand is simplified and better coordinated.