Isda Wants Regulators to use its Model to Draft Rules

The International Swaps and Derivatives Association (Isda) is pushing its Common Domain Model (CDM) for regulators to adopt when amending or drafting future regulations.

“We want to do this as an open project where the regulators could sit at the table and tell us, This is right or this is wrong,” says Ian Sloyan, head of market infrastructure and technology at the industry body. “It could be a new way to develop regulation where the regulators don’t write the rules and publish them; they write draft rules, they come to us where we have a large dataset and we test them.”

The CDM already acts as a standard taxonomy for derivatives that Isda hopes will be adopted to help implement regulations such as the Market in Financial Instruments Directive and the European Markets Infrastructure Regulation. In 2019, Isda’s CDM was used in the second phase of a pilot for digital derivatives reporting, carried out by the Financial Conduct Authority, the Bank of England and major financial institutions. The pilot looked at standardizing the regulatory process and turning rules into code, exploring the possibility of a model-driven and machine-readable approach to regulation.

But in the future, the trade organization envisages that the model will be used as a long-term solution for regulators for developing rules.“That is a very tangible use case where we can give people code to show how to implement the rules,” Sloyan tells WatersTechnology. “And when people see the benefit of that and regulators see how this is mutualizing the implementation of the reporting rules, that can only be good, that can only improve the data.”

But this is only the initial step in helping with the implementation regulations. Sloyan says Isda could even play a part in helping the regulator to draft future rules. In this case, Isda could turn each rule into code using the model to be tested by the regulator, ensuring that it gets the results intended by the regulation.

“We could show them [the regulators] this is how it [the machine-readable rule] would behave, and ask, Is that what you want? and help them make decisions. But this is the long-term view: the short-term view is that we can help with implementation of [existing] rules,” Sloyan adds.

Isda’s CDM was recently referenced in the Bank of England’s discussion paper “Transforming data collection from the UK financial sector”, published on January 7.  The paper said that common standards could help improve data consistency across firm’s systems and potentially help with the creation of new regulatory process, where data is pulled directly from firms on-demand using APIs.

“The CDM is still a young standard and not yet widely adopted. However, solutions like the CDM could increase the quality and transparency of operational data. In turn this could increase the quality of data reported to the Bank, while allowing for greater precision in reporting instructions,” the discussion paper said.