Countdown to June 30: Five Final Steps for QFC Recordkeeping Compliance
- Feb 12, 2021
- Blog QFC Recordkeeping Regulatory Support Risk Management Technology
There are many data and operational challenges associated with Qualified Financial Contracts (QFC) Recordkeeping compliance. Last year, we highlighted the top five challenges associated with preparing QFC data for reporting.
Today, as the final QFC Recordkeeping compliance date of June 30th draws near, we have compiled five of the primary last-mile challenges firms are facing for QFC report generation and submission.
- Linking Reportable Positions and Collateral to Agreements.
Many firms may have already developed a strategy to link positions and collateral to the appropriate agreements. However, in preparing for June 30, some firms are still seeking to perfect this solution and to promptly identify and address unmapped positions. These unmapped positions result in incomplete reports, such as agreement fields being left blank on positions and collateral in Tables A-1 and A-4, respectively. Addressing unmapped positions and collateral to agreements can be a herculean effort across business, operations, legal and compliance teams to develop rules to link and/or manual efforts. Moreover, the daily 7 AM EST reporting deadline and new daily reportable positions necessitate an automated solution. Without automation to link positions and collateral to agreements, QFC report submissions will not pass regulatory scrutiny.
- Automated Links Between Guarantees and Agreements
When there is a third-party guarantee on a reportable QFC position, agreement repositories often do not associate the guarantee to the governing agreement. Additionally, because these guarantees, also known as third-party credit enhancements (TPCEs), are typically managed and captured separately from the governing agreement, there is additional complexity in capturing the association. Since guarantees are also QFCs, they are reportable positions that must:
- Generate netting sets in Table A-2
- Identify obligor and “underlying” QFC for which guarantee is associated in Table – A1.7.1
- Report guarantee exposure, calculated as net deficiency for the underlying QFC in Table A-2.6
Again, firms would benefit from adopting automated solutions to meet the 7am reporting deadline and pass regulatory scrutiny upon qualitative review of submitted reports.
- Pre-Submission Report Validation and Exception Management
Because many firms will need to process millions of records when submitting QFC reports, there are many opportunities for data or process exceptions to occur. Without the ability to categorize and group results of data validations, exception management can be painful. For example, when the summary level information in A2 records does not equal the sum of individual A1 and A4 records, understanding why the records do not match can be problematic without the underlying records linked. Without a solution to pre-validate reports, firms will be unable to proactively identify, assign, and resolve exceptions ahead of submission.
- Effective Interactions with Regulators
Interacting with regulators is a delicate and sometimes intimidating task even under the best circumstances. Being prepared with a proactive understanding of potential regulatory responses is the best way to handle this challenge. As firms get ready for June 30, it is important to have a solid understanding of what regulators look for and how they assess QFC submissions. Additionally, they need a seamless process to quickly respond to regulatory feedback and questions. Without strong governance to track the ongoing resolution of exceptions and violations, interaction with regulators can become even more stressful.
- Getting Ready by 7 AM EST, Everyday!
One of the main operational challenges associated with QFC compliance is that firms need to be ready with all the reports by 7 AM EST, every business day. This requires all positions, collateral, margin, agreements, and all other feeding systems to provide the requisite information well in advance, so the QFC Recordkeeping process can harmonize, link, and report information accurately. In practice, things may go wrong, and one or more feeds may have issues. As a result, firms need a strong control framework to proactively identify, track, and resolve these issues.
As your firm prepares for June 30, the experts at Transcend are happy to brainstorm about solutions to any of these challenges or introduce how the Transcend Platform can help in meeting your QFC compliance needs.
Contact us today to discuss.