How to prepare for the JFSA rewrite

What Is the JFSA Rewrite and How to Prepare for It?

The JFSA Rewrite – why it matters

Financial firms around the world are facing more challenges in fulfilling their transaction reporting obligations and the Japanese regulator is joining the trend with its own Rewrite to the existing requirements. For the first time in about 10 years, since the Cabinet Office Order on the regulation of OTC derivative transactions was established, there will be a significant change on the horizon.

The JFSA Rewrite

The Article 156-63 and 64 of the Financial Instruments and Exchange Act (FIEA), requires firms to have a system for storing and reporting transaction data under the title of Regulation of Over-the-counter derivatives trading. Based on the revision of the above article established in 2020, the Rewrite of the OTC derivative trade (transaction) reporting system is scheduled to be implemented in October 2022.

This comes in response to the growing trend of harmonizing OTC derivative transaction data in Europe and North America, to promote international data sharing. In Japan, financial institutions from clearing houses to dealers will be impacted by this. The reporting destination will be changed to a licensed trade repository, in order to centralize data.

Under this new JFSA Rewrite, firms need to take appropriate measures to adapt to the new requirements.

What should financial firms do to prepare for the JFSA Rewrite?

See below for three action items to be considered:

  1. If you are a firm subjected to the JFSA jurisdiction it is recommended for you to register with the DDRJ (DTCC Data Repository [Japan] K.K.) early.
  2. Increase your budget for additional registration and usage fees to DDRJ:

The current reporting destination is directly to the Financial Services Agency (FSA), which is free of charge. Going forward, reporting to DDRJ will incur additional costs for the service.

  1. Prepare to make changes to your current reporting process as the reporting requirements between the FSA and the DDRJ will be significantly different.

Financial firms will have to:

  • Establish a new reporting format due to the field difference between the current reporting specification from FSA and the Rewrite specification from DDRJ.
  • Prepare to include Valuation and Collateral to the current Transaction Reporting.
  • Adherence to ISO20022, which is a new single standardization approach to be used by all financial standards initiatives. Most financial institutions that are required to store and report OTC derivative transaction data in Japan are currently submitting directly to the FSA in CSV format.
  • UTI sharing and Pairing: Another pain point, which firms may have to address. It is unclear if this requirement will be mandated in Japan, but it has clearly been a challenge elsewhere in the world.

Next steps in your JFSA planning – should you wait, or should you start?

We expect that the JSFA will announce a deferred go live date to this Rewrite in April 2022, which is likely to be postponed until the latter half of 2023. At the same time, perhaps more details of what the Rewrite will constitute may be announced.

Many financial institutions in Japan are planning to make decisions after the official announcement from the FSA regarding the enforcement and application of the revision of the OTC derivative trade (transaction) reporting.

Despite this popular approach, we recommend that firms start applying concrete measures as soon as possible. Similar to the US and EU with the CFTC Rewrite and the EMIR REFIT, the changes required for the JFSA Rewrite will be significant. Time and again we have seen firms underestimating the time necessary for a smooth implementation. Hence, we strongly encourage firms to take advantage of this period to evaluate and identify where and how they can optimize and streamline their regulatory reporting process.

Find out more from our experts.

Ogawa Masaki
About the author: Ogawa Masaki
Mr Masaki is Sales Director of S&P Global “Global Regulatory Reporting Solutions” Business in Japan. He is responsible for major OTC derivatives trading institutions such as banks, securities, and insurance companies. He has extensive experience in selling derivative products to companies such as UBS Securities, ABN Amro, and Bank of America. Previously, he oversaw sales at IHS-Markit's Enterprise Data Management solutions.