It's Not Easy Being Extraterritorial

Leading up to the North American Financial Information Summit (NAFIS) in New York on May 21, I expected the discussions on the agenda to stretch beyond the legal entity identifier (LEI) and touch on other pressing regulatory concerns, for both the US and Europe.

NAFIS attendees got a bit more than that, as panelists focused on "extraterritoriality," a common thread for implementation of all the newer regulations such as the Foreign Account Tax Compliance Act (Fatca), Basel III and MiFID II. The LEI, along with all of these, will be affected to some degree by the differences between various nations' implementation of new rules, whether that comes in how they interpret the rules or how they put the rules into practice or enforce them.

Speaking at NAFIS, Peter Serenita, chief data officer at HSBC in New York, pointed out the importance of reference data operations, saying that phasing in these rules "requires the ability to have good reference data and know which components of the reporting you need to phase in over time." With identifiers, Serenita added, a firm's trading process should be tracked, and "you need clear reference data for how that relationship between that fund manager and clients exists."

In the same discussion covering the global regulatory landscape, Jacklyn Osborne, global head of client data policy and quality assurance at UBS in Stamford, Conn., raised the possibility that provisions of the US Dodd-Frank Act and Europe's Basel III capital adequacy rules could prove compatible. However, to achieve a single identifier that integrates counterparty and issuer data, the industry will have look "at not just one regulation, but all the regulations together, because they have so much overlap."

As Osborne also said, different definitions for data attributes identified in the Fatca regulation can create inefficiency. UBS set its own data standards for accuracy, completeness, consistency and timeliness to keep its Fatca data management efficient. Similarly, Serenita cautioned against having multiple systems to address multiple national regulations due to extraterritoriality.

"If you try to look across different boutique solutions, you can never really do it because they don't quite add up," said Serenita. "If you're trying to look at the same thing, but reporting it differently, you're suddenly creating a series of requirements that are very specific to a market or location."

Standards such as the LEI and regulations such as Fatca, Basel III and MiFID are issued with the intention of harmonizing the rules worldwide, or at least within a certain region, such as the European Union. Global firms like UBS and HSBC, responding to the intent of those drafting the regulations, try to reflect that with harmonized systems that produce consistent results whatever the territory. But individual territories' or nations' objections to or differences with the letters of those laws are making it harder for firms to achieve extraterritoriality—if one thinks of that word as meaning rules that work no matter what the territory.