RegTech Insight Q&A: UPI Rollout for OTC Derivatives by DSB

It’s been a busy year at the Derivatives Service Bureau (DSB) with the successful rollout of the unique product identifier (UPI) for OTC derivatives. RegTech Insight (RTI) caught up with Emma Kalliomaki, Managing Director of DSB and the Association of National Numbering Agencies (ANNA), for a Q&A to better understand how supports industry-wide standards adoption through best practices, the communities and support organisation it has established.

RTI: Can you describe the decision-making process within the DSB, particularly in terms of setting strategic priorities and responding to regulatory changes?

ROC is a group of more than 65 G20 financial markets regulators and other public authorities from more than 50 countries).

Briefly, the key principles the DSB follows are:

• Cost recovery: The numbering agency services for OTC ISINs and UPIs are provided on a cost-recovery basis with costs are allocated fairly among stakeholders
• Unrestricted data: OTC ISINs, UPIs and their associated reference data have no licensing restrictions on usage and distribution for any purpose
• Open access: Access to the DSB archive for consumption of OTC ISINs, UPIs and associated reference data is available to all stakeholders
• Economic sustainability: The DSB funding model must be sustainable – lean, efficient, and reliable
• Equal treatment: The DSB ensures parity and efficiency in delivery of services. following standardised processes and procedures with exceptions to terms are only introduced on the basis that they can be consistently applied across all users without imposing a risk on the DSB services.
• Separate service provision: Access to the UPI and ISIN services are not tied or bundled with any other service offered by the DSB

These principles guide, and are threaded through, all DSB decisions which are taken by the DSB’s Board of Directors with three Industry Representation Groups (see Q2 below) acting in an advisory capacity to the Board and providing industry stewardship.

In terms of responding to regulatory changes, the current reforms in progress in the EU provide a good ‘case study’.

The European Commission recently issued draft rules in June 2023 for consultation which propose modifications to the OTC derivatives ISIN to facilitate price transparency. The DSB has assisted with technical and explanatory clarifications as required for both industry and regulators. During the European Commission’s consultation, the DSB hosted two webinars for industry providing an overview of the draft rules and how the DSB can support implementation, with the Commission speaking at one webinar and regulators attending to observe. The Commission will issue its final rules later in 2024 and the DSB will implement the changes through collaboration with its industry representation groups.

RTI: How do you balance the needs and feedback from a diverse group of stakeholders, including regulators, market participants, and internal teams?

Kalliomaki: Collaboration is at the core of the DSB’s approach, and it operates three industry representation groups which each cover both the UPI and OTC derivatives ISIN. These committees comprise representatives from DSB’s user organisations, independent experts and regulatory observers – members, minutes, agendas are all published on the DSB website for transparency:

• The Product Committee (‘PC’) supports the evolution of the DSB’s product definitions. (Product Committee (PC) – DSB (anna-dsb.com)
• The Technology Advisory Committee (‘TAC’) guides the evolution of the DSB’s technology and operations. Technology Advisory Committee (TAC) – DSB (anna-dsb.com)
• The Governance Advisory Committee (‘GAC’) advises on governance matters, including the subscription terms and policies, control frameworks such as threshold monitoring and considerations to the structure of the DSB’s cost recovery fee model. Governance Advisory Committee (GAC) – DSB (anna-dsb.com)

These committees are forums for industry to put forward their views on how to evolve the services and how to best implement changes with regulators present to enable dialogue. The DSB also issues an annual industry consultation on aspects of the DSB’s services that users have highlighted for development consideration and optimisation, or to address evolving market practices and technological advances.

RTI: Can you talk about how DSB is planning to leverage newer technologies generative AI (GenAI), LLMs and Distributed Ledger Technology?

Kalliomaki: The DSB is considering how it can use GenAI and open source LLM’s to assess data quality and define quality metrics in the reference data managed by the DSB with the objective of enhancing DSB’s understanding of how clients use the service and how it can improve data quality and the service in general.

AI tools are actively used by the DSB: from co-pilots supporting generation of code to minute writing are used in delivery of the service.

The DSB’s Technology Advisory Committee (TAC) is discussing the topic of DLT technologies towards the end of this year as part of its remit to monitor evolving technologies.

RTI: UPI having been live since January, what challenges, if any, do you see firms struggling with?

Kalliomaki: The UPI Service went live on 16 October 2023 with the first UPI reporting mandate coming into force in the US on 29 January 2024. This meant firms which had to meet the US deadline of 29 January had 3 months to integrate the UPI services including search for and create UPIs in readiness. Moreover, the DSB launched its UAT (user acceptance test environment) in April 2023 which allows prospective users to test connectivity and access options free of charge for 6 months from the date of entering it. We saw firms using the test and live environments from day one which was great

So far in 2024, two jurisdictions have gone live with their UPI reporting – the US In January and the EU in April. In advance of each start date, the DSB looked at its onboarding data and found that in the main, organisations were prepared

• Data shows number of firms prepared for UPI regulatory reporting in the US is in line with DSB expectations – DSB (anna-dsb.com)
• DSB releases details of industry readiness for UPI Reporting in the EU – DSB (anna-dsb.com)

Following the regulatory compliance dates coming into effect and having experience that the practical adoption and implementation of standards is a journey, the DSB tracks support cases and ensures queries are referred and discussed in the relevant industry representation groups.

For example, the Product Committee is instrumental in discussing product related queries and publishing Best Practice FAQs to assist the broader user community. This ensures that users that are yet to onboard can learn from the experiences of those who have gone before them. The DSB’s collaborative forums of public and private sector participants assists in solutions being deliberated and developed in cooperation.

RegTech Insight is grateful to Emma Kalliomaki for taking the time to share some of the key DSB operating principles that have underpinned the successful rollout of the UPI and the ongoing support for industry-wide standards adoption. Emma also participated in the recent Data Management Insight webinar that addressed “How to maximise the use of data standards and identifiers beyond compliance and in the interests of the business.”