Blog: Top 3 takeaways from the ISDA 36th AGM 2022 in Madrid – IHS Markit

The International Swaps and Derivatives Association (ISDA) held
their Annual General Meeting (AGM) in Madrid, Spain on May
10th-12th. This conference featured keynote addresses from some of
the senior financial, banking, and derivatives regulators around
the world. It focused on some of the prominent issues facing the
industry including crypto and digital assets, regulatory reporting,
and document digitization. During the conference, ISDA celebrated
the 10-year anniversary of the of the launch of ISDA Amend with IHS
Markit (now S&P Global Market Intelligence), the platform
allowing derivative counterparties to exchange regulatory documents
and representations electronically.

Some of the speakers at the AGM included Securities and Exchange
Commission (SEC) Chairmen Gary Gensler, Commodity Futures and
Exchange Commission (CFTC) Chairmen Rostin Behnam, Chair of the
Financial Stability Board (FSB) Klaas Knot, Chairman of the Basel
Committee on Banking Supervision Pablo Hernández de Cos, Chair of
the European Securities and Markets Authority (ESMA) Verena Ross.
There were additional sessions with FTX CEO Sam Bankman-Fried,
Founder and a regulatory panel with representatives from the U.S.
Treasury Department, CFTC, U.K. Financial Conduct Authority (FCA),
European Commission and FSB.

Crypto – do regulators need tools or are they locked and
loaded?

A large focus of the conference was the emergence of
cryptocurrencies, stablecoins and digital asset derivatives. In the
past year, the transaction volume for crypto-linked derivatives has
eclipsed the volume in the crypto spot market. At the same time,
many of the largest digital asset exchanges have moved to acquire
CFTC regulated entities including Futures Commission Merchants
(FCMs), Derivatives Clearing Organizations (DCOs) or even going so
far as registering as Swap Dealers with the CFTC. These
developments combined with the considerable volatility around
crypto assets, including the implosion of one of the largest
stablecoins (Luna’s TerraUSD coin) during the conference,
heightened the focus on the need for regulation and standard
documentation in the sector.

Almost every regulator that spoke at the AGM, made mention of
crypto and the influence digital assets are having on financial
markets, especially the derivatives market. They also stressed the
need for clear standards and regulations that could allow
innovation to continue in the sector while mitigating the potential
systemic risk that can arise from these assets. The bifurcated
nature of the regulatory apparatus around crypto in the United
States was noted a major challenge by many of the regulators and
panelists that were present at the AGM.

This dichotomy was on vivid display when comparing the addresses by
leaders of the CFTC and SEC. Chairmen Behnam and CFTC Commissioner
Caroline Pham talked about the need for additional legislation to
help define who regulates the digital asset market, particularly
the spot market for cryptocurrencies. Both believed the CFTC, given
its traditional role regulating OTC derivatives in the U.S., was
the logical body to lead the regulation of digital assets. They
also stressed the need to work with the industry and foster
innovation in this emerging asset class.

SEC Chair Gensler on the other hand repeatedly mentioned the risks
to investors and potential impacts on financial stability that the
emergence of digital assets could pose. He asserted his view that
the SEC already possessed much of the authority it needed to
regulate digital assets under the existing securities laws,
particularly the vast majority cryptocurrencies which he believed
fell under the definition of a security. One of the most noteworthy
statements Chair Gensler made pertained to regulating digital asset
platforms and exchanges. He put forward the view that if these
exchanges were offering digital asset derivatives linked to
underlying digital assets he considered to be securities, then they
might have to register as Security-Based Swap Dealers
(SBSDSs).

Regulatory Reporting – ESG & Crypto Standards Needed,
New Dodd-Frank & EMIR Rules

Another central theme of the conference revolved around the data
that was being disseminated to regulators and the public. For
emerging assets like crypto and Environmental Social and Governance
(ESG), reporting requirements are still in development and there
continue to be questions about the quality of the data used to
measure and quantify the environmental risks posed by these asset
classes. Traditional instruments like equities, fixed income and
derivatives already have established reporting regimes, yet there
was considerable debate as to whether this information should be
disseminated to the public via a consolidated tape. Verena Ross,
Chair of ESMA, announced the European Union’s intention to create a
consolidate tape in the EU, starting with fixed income instruments
and then moving to equity and derivative instruments over time.

Reporting requirements were a top priority for many conference
attendees who are cognizant of the amendments to the CFTC swaps
reporting regime are scheduled to go into effect on December. CFTC
Behnam confirmed to the audience that there would be no extension
of the no-action relief that expires on December 5, 2022. This will
be followed by the EMIR Refit reporting amendments that become
effective in 2023. S&P Market Intelligence showcased its Global
Regulatory Reporting Solutions (GRSS) which allows clients to use a
single software platform that allows reporting in virtually every
major reporting jurisdiction including the U.S. EU, Japan,
Singapore, Hong Kong, Canada, and Australia.

One of the most important elements of the CFTC re-write is the
addition of a new transaction reporting field known as the Federal
Entity Indicator (FEI). This field will need to be included on all
swap transactions that are required to be reported to a Swap Data
Repository (SDR) under Part 43 and Part 45 of the CFTC’s rules and
is designed to denote whether or not the counterparty is transacted
with a federal entity. Without a central database of these federal
entities or a definition that aligns with other previous
regulations, it will be incumbent upon Swap Dealers to collect this
information for all of their in-scope derivative
counterparties.

On one of the panels, Lansing Gatrell (Managing Director,
S&P Global) mentioned that the absence of such a central
database is what makes platforms like ISDA Amend so powerful by
providing a mechanism of collecting data like the FEI.

Document Digitization
Digitization and harmonization of contractual terms was another
central focus of the conference. The need for unified standards,
templates and definitions came up in almost every discussion of
crypto and ESG at the AGM. Many pointed to the evolution in the
credit and cleared derivatives market to highlight the potential
benefits that standardization can bring.

One significant development came in opening remarks by ISDA CEO
Scott O’Malia, when he announced the alliance between ISDA,
Linklaters and S&P Global Market Intelligence to make the ISDA
Create contract negotiation platform available within S&P
Global Market Intelligence’s Counterparty Manager service. ISDA
Create allows users to customize legal documents such as ISDA
Master Agreements and Credit Support Annexes (CSAs) using built-in
clause library thereby providing greater efficiency and
transparency to the current practice of emailing redlined
documents. The integration of ISDA Create into Counterparty Manager
will now give customers the ability to complete the entire
onboarding lifecycle, including the formal contract negotiation,
within one software platform.


Posted 15 June 2022 by Adam Goldberg, Regulatory and Compliance SME, Network & Regulatory Solutions, S&P Global Market Intelligence


IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.


This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.

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