Finzly's FX-STAR Prepares Banks for CFTC's UPI Changes

Regulatory reporting is a significant cost for banks, with nearly 50% reporting compliance cost increases of over 20%, according to S&P Global. This expense is expected to rise with the introduction of new regulations. The recent overhaul mandated by the Commodity Futures Trading Commission (CFTC) is causing additional reporting worries for banks offering trading to their customers.

Given the non-negotiable nature of regulatory compliance, it's imperative for banks to ally with a reliable vendor offering a Software as a Service (SaaS) model to stay ahead of the curve. Finzly's SaaS engagement, characterized by practically zero downtime during updates, enables banks to stay updated on regulations, such as reporting requirements and new standards like ISO 20022, as well as impending changes like the T+1 migration deadlines. This proactive strategy allows banks to concentrate on delivering an exceptional experience with full transparency in trades to their customers and regulatory bodies like DTCC.

One notable instance is the Commodity Futures Trading Commission’s (CFTC) Re-Write initiative. As part of this effort, the CFTC requires all Financial Institutions engaged in Over-the-Counter (OTC) Derivatives trading to report their transactions to DTCC’s Global Trade Repository (GTR) in the US. Regional Banks in the US utilize Finzly’s FX Star platform for trading FX Derivatives, which are subject to reporting to DTCC GTR.

During Phase-I of the CFTC Re-write in December 2022, the reporting formats were streamlined from three reports to two, and the Unique Swap Identifier (USI) was replaced with the Unique Transaction Identifier (UTI). Phase-II of the CFTC Re-write, set for January 2024, introduces the requirement to report the Unique Product Identifier (UPI) to DTCC GTR in addition to existing obligations. These overhauls mandated by the CFTC is causing additional reporting worries for banks offering FX Derivative trading to their customers.

Below is an interview with the Yeshwant Bhargav, FX Product Manager, and Dharmesh Patel, Head of Customer Success at Finzly.

Excerpt from the interview:

How has Finzly’s FX STAR solution assisted numerous regional banks in navigating the CFTC Phase 2 requirements for trading?

Yeshwant: Finzly has consistently taken proactive measures to ensure our FX STAR product remains current, addressing evolving trading demands and regulatory standards. Our clients, being regional banks, have limited resources in terms of people and time to implement these regulatory changes within tight deadlines. Recognizing this, Finzly, as a trusted partner, stepped in to ensure not only timely implementation of regulatory changes but also to devise innovative ways to assist our clients in achieving compliance with minimal effort, time, and cost. The recent rollout of the CFTC Rewrite Phase-II changes was well-received by our customer community, underscoring the value Finzly brought to the table.

Can you elaborate on how you've incorporated the Unique Product Identifier (UPI) into your FX product?

Yeshwant: Finzly, working closely with our regional banks, took charge of discussions with ANNA-DSB, the UPI provider. Finzly evaluated all the available pricing models offered by ANNA-DSB and picked the best one for our banks. Our tech team found smart solutions for accessing and loading UPIs into FX Star, making it super easy with just one click. We ensured a seamless and hassle-free rollout for our clients, which otherwise could have turned into an operational nightmare for our customer banks.

What were Finzly’s changes to its product for Phase 1 of CFTC?

Yeshwant: Phase 2 primarily focuses on UPI reporting for swap transactions across various asset classes. It builds upon Phase 1, which introduced significant changes to reporting formats, including the implementation of Unique Transaction Identifiers (UTIs) and the consolidation of reports.

How does the SaaS model offered by Finzly empower banks using FX STAR to gain a competitive edge in international banking?

Dharmesh Patel: Finzly streamlines compliance by offering banks a centralized platform to oversee their trading and regulatory obligations, thereby reducing the Total Cost of Ownership (TCO). Through regular platform updates, which include up-to-date transaction reporting capabilities across front-middle-back office workflows, our SaaS engagement model enables banks to adapt to regulatory changes seamlessly, without extra cost or effort. This allows banks to redirect resources towards providing exceptional service and transparency to their customers, while Finzly manages the intricacies of regulatory adherence.

In terms of regulatory reporting, what future developments do you anticipate, and how does Finzly ensure that banks are prepared for them?

Dharmesh Patel: In the ever-changing regulatory landscape, especially with bodies such as the CFTC, Finzly remains steadfast in its commitment to equipping clients with innovative solutions that proactively address emerging challenges. Whether it's upcoming standards such as ISO 20022 or future changes in settlement cycles like the T+1, Finzly ensures that banks leveraging FX STAR are well-prepared to thrive amidst shifting dynamics.

FAQs on CFTC Phase 2 Reporting

What does Phase 2 of CFTC's changes entail for trade reporting?

CFTC Phase 2 reporting for trades is a regulatory requirement that mandates the reporting of swap transactions to a registered swap data repository (SDR). The requirement mandates the use of a unique product identifier (UPI) for swaps in the credit, equity, foreign exchange, and interest rate asset classes to comply with certain recordkeeping and reporting requirements.

What is a unique product identifier (UPI)?

A unique product identifier (UPI) is a code to provide a standardized way of identifying financial products across different jurisdictions and markets.

What are the benefits of using UPIs?

The use of UPIs is expected to increase transparency in the swaps market, enabling the Commission to fulfill its regulatory responsibilities and assist in the real-time public reporting of swap transaction and pricing data.

Which asset classes require UPI reporting?

As of January 2024, UPI reporting is mandatory for credit, equity, FX, and interest rate swaps, but not commodities.

What is the compliance date for the UPI requirement?

The compliance date for registered entities and swap counterparties to use the DSB UPIs for swaps in the credit, equity, foreign exchange, and interest rate asset classes is January 29, 2024. 

The CFTC may take enforcement action for non-compliance with reporting requirements.