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Upgrade Needed to ISDA/FOA Reporting Delegation Agreement?

To date, much of the discussion surrounding the ISDA/FOA Reporting Delegation Agreement has focused on whether the document is balanced in its allocation of risk between sell-side and buy-side.  However, today, a new factor was introduced when the Futures and Options Association (FOA) notified members that it has received confirmation that the FCA regards the delegation of reporting under EMIR as subject to the SYSC 8 (Outsourcing) requirements of the FCA Handbook.

In general, a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems[1].  On balance, it seems unlikely that the delegation of EMIR reporting would constitute the outsourcing of a “critical or important” function for the purposes of SYSC 8, but either way firms looking to outsourcing this function will, inter alia, have to consider a number of factors not directly addressed within the ISDA/FOA Agreement, but which should be documented in writing nonetheless.  Although, in practice, much of the risk associated with the outsourcing of delegated reporting can be mitigated by hard-wiring a relatively short termination period into Section 12(b) of the ISDA/FOA Agreement, other factors, such as the establishment of methods for assessing the standard of performance of the service provider, may require more detailed negotiation.  Any firm outsourcing its EMIR reporting should also consider contingency arrangements in the event of the termination of delegated reporting services.


[1] PRIN 2.1.1R

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