NatWest Markets PLC

Rule 91-507 Trade Repositories and Derivatives Data Reporting – derivatives trade reporting obligations – Applicant seeking extension of relief from requirements relating to the reporting of certain counterparty information – relief granted, subject to conditions.

Applicable Legislative Provisions

Ontario Securities Commission Rule 91-507 Trade Repositories and Derivatives Data Reporting, s. 42.

September 28, 2018

IN THE MATTER OF
THE SECURITIES LEGISLATION OF
ONTARIO, QUÉBEC AND MANITOBA
(THE “JURISDICTIONS”)

AND

IN THE MATTER OF
THE PROCESS FOR EXEMPTIVE RELIEF APPLICATIONS
IN MULTIPLE JURISDICTIONS

AND

IN THE MATTER OF
NATWEST MARKETS PLC
(THE APPLICANT)

DECISION

Background

The securities regulatory authority or regulator in each of the Jurisdictions (each a “Decision Maker”) has received an application from the Applicant for an order in Ontario pursuant to Part 6 of Ontario Securities Commission (“OSC”) Rule 91-507 – Trade Repositories and Derivatives Data Reporting, in Québec pursuant to section 86 and section 111 of the Derivatives Act (Québec), CQLR, c. I-14.01, and in Manitoba pursuant to Part 6 of MSC Rule 91-507 – Trade Repositories and Derivatives Data Reporting, varying a decision signed by the Director of the OSC dated September 28, 2016, as varied on September 28, 2017 (the “Existing Relief Decision”) which provides relief for the Applicant and for National Westminster Bank plc (“NatWest Bank”) from the following derivatives data reporting requirements in relation to new and existing transactions under Part 3 of OSC Rule 91-507 – Trade Repositories and Derivatives Data Reporting (the “OSC Reporting Provisions”), Chapter 3 of the Autorité des marchés financiers' Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (the “AMF Reporting Provisions”), and Part 3 of MSC Rule 91-507 – Trade Repositories and Derivatives Data Reporting (together with the AMF Reporting Provisions and the OSC Reporting Provisions, the “Local Reporting Provisions”):

(a) the requirement for a reporting counterparty to report, update, amend or supplement (collectively, “Report”) the Legal Entity Identifier (“LEI”) of a transaction counterparty where such reporting could result in the reporting counterparty breaching laws applicable in either the reporting counterparty’s or the transaction counterparty's own jurisdiction that prohibit, restrict or limit the disclosure of information relating to the transaction or to a counterparty or that require the transaction counterparty's consent to such disclosure in circumstances where such consent has not been obtained, or where such consent is not sufficient to override such prohibition, restriction or limitation; and

(b) the requirement for a reporting counterparty to Report certain information (as more fully described below) related to or dependent on a transaction counterparty, which information has not been provided to the reporting counterparty by the transaction counterparty or has not otherwise been obtained by the reporting counterparty at the time of reporting.

The Existing Relief Decision with respect to the relief described under paragraphs (a) and (b) above ceases to be available after September 28, 2018 (the “Sunset Provision”).

The Applicant has requested that the Existing Relief Decision be varied with respect to the Applicant (the “Variation Relief Sought”) to (i) remove all references to NatWest Bank, and (ii) change the Sunset Provision to April 1, 2019.

Under the Process for Exemptive Relief Applications in Multiple Jurisdictions (for a coordinated review application):

1. the OSC is the Principal Regulator for the application; and

2. the decision is the decision of the Principal Regulator and evidences the decision of each other Decision Maker.

Interpretation

Terms defined in National Instrument 14-101 – Definitions and MI 11-102 – Passport System have the same meanings if used in this decision, unless otherwise defined.

For the purposes of this decision the following terms have the meanings set out below:

“Blocking Law” means any statute, law, enactment, rule, order, judgement, practice, guideline or decree that would restrict or limit a subject person's disclosure of information relating to a Subject Transaction or to the counterparty of a Subject Transaction.

“Consent Requirement” means any statute, law, enactment, rule, order, judgement, practice, guideline or decree that would require a counterparty to a Subject Transaction to consent to a subject person's disclosure of information relating to a Subject Transaction or counterparty.

“Subject Transaction” means a transaction that is subject to reporting in accordance with the applicable Local Reporting Provisions.

“Trade Specific Requirement” means a requirement arising under a Blocking Law or in connection with a Consent Requirement that would require that steps be taken to comply therewith in connection with and at the time of a Subject Transaction, on a transaction by transaction basis.

“Quarterly Compliance Report” means a report substantially in the form attached to this decision as “Exhibit A”.

Representations

This decision is based on the following facts represented by the Applicant:

1. NatWest Markets plc (“NatWest Markets”), formerly The Royal Bank of Scotland plc, is a wholly-owned subsidiary of The Royal Bank of Scotland Group plc (“RBS Group”);

2. RBS Group is a large banking and financial services operation that is ultimately controlled by the government of the United Kingdom (“UK”) acting through HM Treasury, the UK government’s economic and finance ministry, and conducts much of its over-the-counter (“OTC”) derivatives operations through NatWest Markets;

3. NatWest Markets conducts its global OTC derivatives operations from its four core trading hubs located in London, Stamford, Singapore and Tokyo and enters into OTC derivatives with Canadian counterparties from those offices;

4. the Applicant has established or procured internal technology, systems and procedures that the Applicant believes should enable it to give effect to the Local Reporting Provisions;

5. in order to comply with the Local Reporting Provisions applicable to a transaction, the Applicant may need to: (a) if required by applicable law, obtain a consent from the counterparty to enable the reporting counterparty to disclose information relating to the transaction or counterparty, and (b) receive certain counterparty-specific information, including the counterparty’s LEI (or its equivalent), or information sufficient to enable the Applicants to determine whether the counterparty is a local counterparty (collectively, in respect of a counterparty to a transaction, the “Required Counterparty Feedback”);

6. the Applicant has continued to engage in diligent efforts to solicit Required Counterparty Feedback through direct client outreach and through industry efforts;

7. the Applicant has established a policy that it will not enter into an OTC derivative transaction with a counterparty without obtaining the counterparty’s LEI;

8. a failure to provide the Variation Relief Sought could result in inconsistent or disrupted reporting of derivatives data by the Applicant, or in the Applicant not entering into new derivatives transactions with affected transaction counterparties, all of which could have negative implications for the Applicant, affected transaction counterparties, the Canadian financial system and the broader Canadian economy;

9. the Applicant has complied with the requirements of the Existing Relief Decision; and

10. the Applicant is not in default of securities legislation in any jurisdiction.

Decision

Each of the Decision Makers is satisfied that the decision meets the test set out in the Legislation for the Decision Maker to make the decision.

The Principal Regulator has considered that the Financial Stability Board has committed to monitor progress and publish, ahead of the G20 Leaders’ Summit in Argentina in 2018, a report on the extent to which member jurisdictions have met their commitments to remove barriers to reporting counterparty information to trade repositories.

The decision of the Principal Regulator is that the Variation Relief Sought is granted and it orders that, in respect of each Subject Transaction, paragraphs 1, 2 and 3 of the Existing Relief Decision be varied on the foregoing basis and restated as set forth below:

1. Relief related to Blocking Laws – The Applicant is exempted from the reporting of creation data under Reporting requirements contained in sections 26, 27(a), 28, 31, 32, 34 and 35 of the Local Reporting Provisions (collectively, the “Reporting Provisions”) only to the extent that the Applicant would be required to Report the creation data contemplated in Appendix A of the applicable Local Reporting Provisions under “Identifier of non-reporting counterparty” in respect of a Subject Transaction, in the following circumstances:

(A) the Applicant determines that its transaction counterparty or the Subject Transaction is subject to a Blocking Law; or

(B) the Applicant, having used reasonable efforts, has been unable to determine if its transaction counterparty or the Subject Transaction is subject to a Blocking Law,

provided that the Applicant:

(i) either (x) Reports an internal identifier code for its transaction counterparty or (y) if it is not feasible or not practical for the Applicant to Report an internal identifier code for the transaction counterparty in compliance with the applicable Blocking Law, Reports that the LEI of the transaction counterparty is undisclosed;

(ii) prepares and delivers to the OSC no later than 45 days after the end of each quarter Quarterly Compliance Reports setting out (x) a list of all jurisdictions that it reasonably determines are subject to an applicable Blocking Law; and (y) a list of jurisdictions in respect of which the Applicant, having used reasonable efforts, has been unable to determine if an applicable Blocking Law exists;

(iii) makes diligent efforts to determine whether Blocking Laws exist in the jurisdiction where its transaction counterparty is located; and

(iv) makes diligent efforts, where required, to correct any reporting it has made in relation to the Subject Transaction in reliance on the foregoing exemptions on a timely basis after any previously applicable Blocking Law no longer applies to limit or restrict the Applicant’s disclosure of information relating to the Subject Transaction or the transaction counterparty,

and provided further that the foregoing exemption will continue to apply in respect of the Subject Transaction during a period of up to 3 months following the date on which the Applicant becomes aware that any previously applicable Blocking Law no longer applies to limit or restrict the Applicant’s disclosure of information relating to the Subject Transaction or the transaction counterparty.

2. Relief Related to Consent Requirements – The Applicant is exempted from the reporting of creation data under the Reporting Provisions only to the extent that the Applicant would be required to Report the creation data contemplated in Appendix A of the applicable Local Reporting Provisions under “Identifier of non-reporting counterparty” in respect of a Subject Transaction, in the following circumstances:

(A) the Applicant determines that its transaction counterparty or the Subject Transaction is subject to a Consent Requirement that has not been provided by the transaction counterparty to the Applicant; or

(B) the Applicant, having used reasonable efforts, has been unable to determine if its transaction counterparty or the Subject Transaction is subject to a Consent Requirement,

provided that the Applicant:

(i) either (x) Reports an internal identifier code for its transaction counterparty or (y) if the Applicant has all necessary processes in place to internally identify its transaction counterparty and it is not feasible or not practical for the Applicant to Report an internal identifier code for the transaction counterparty in compliance with the applicable Consent Requirement, Reports that the LEI of the transaction counterparty is undisclosed;

(ii) prepares and delivers to the OSC no later than 45 days after the end of each quarter Quarterly Compliance Reports setting out (x) a list of all jurisdictions that it reasonably determines are jurisdictions in which an applicable Consent Requirement exists; and (y) a list of jurisdictions in respect of which the Applicant, having used reasonable efforts, has been unable to determine if an applicable Consent Requirement exists;

(iii) makes diligent efforts to obtain any required consent from the transaction counterparty, other than any consent that would arise in connection with a Trade Specific Requirement; and

(iv) makes diligent efforts, where required, to correct any reporting it has made in relation to the Subject Transaction in reliance on the foregoing exemptions on a timely basis after all consents required to satisfy a Consent Requirement in relation to the Subject Transaction have been obtained by the Applicant,

and provided further that the foregoing exemption will continue to apply in respect of the Subject Transaction during a period of up to 3 months following the later of (x) the date on which the transaction counterparty has provided the Applicant with all such required consents and (y) the date on which the Applicant becomes aware that any previously applicable Consent Requirement no longer applies to limit or restrict the Applicant’s disclosure of information relating to the Subject Transaction or the transaction counterparty.

3. Required Counterparty Feedback – The Applicant is exempted from the reporting of creation data under the Reporting Provisions only to the extent that the Applicant would be required to Report the creation data contemplated in Appendix A of the applicable Local Reporting Provisions under “Jurisdiction of non-reporting counterparty” in respect of a Subject Transaction, in the following circumstances:

(A) Counterparty Status as a Local Counterparty – if the transaction counterparty has not provided the Applicant with Required Counterparty Feedback sufficient to enable the Applicant to determine if the transaction counterparty is a “local counterparty” under the Local Reporting Provisions of the Jurisdiction, provided that the Applicant Reports the Subject Transaction to the jurisdiction in which the Applicant has its principal place of business and, if reasonably practicable, makes diligent efforts to use the information from its own systems to Report the Subject Transaction in the transaction counterparty's jurisdiction, in each case if and to the extent it is reportable by the Applicant in such jurisdiction, and provided further that the foregoing exemption detailed in this paragraph 3(A) shall not be available in respect of a Subject Transaction entered into by the Applicant on or after March 31, 2018 if the transaction counterparty is a person or company (a) that the Applicant determines (having made diligent efforts to use the information from its own systems) is organized under the laws of the Jurisdiction or has its head office or principal place of business in the Jurisdiction and (b) with whom the Applicant has no pre-existing contractual relationship relating to transacting in derivatives as of such date; or

(B) Existence of a Guaranteed Affiliate – if the transaction counterparty has not provided the Applicant with Required Counterparty Feedback sufficient to enable the Applicant to determine if the transaction counterparty has an affiliate that is organized under the laws of the Jurisdiction or that has its head office or principal place of business in the Jurisdiction and that is responsible for the liabilities of the transaction counterparty; (a “Guaranteed Affiliate”), provided that the Applicant otherwise reports the Subject Transaction if the transaction counterparty is otherwise a “local counterparty” under the Local Reporting Provisions,

provided that the Applicant:

(i) prepares and delivers to the OSC no later than 45 days after the end of each quarter, Quarterly Compliance Reports setting out its efforts to obtain Required Counterparty Feedback; and

(ii) makes diligent efforts, where required, to correct any reporting it has made in relation to the Subject Transaction in reliance on the foregoing exemptions on a timely basis after Required Counterparty Feedback has been obtained,

and provided further that the foregoing exemptions will continue to apply in respect of the Subject Transaction during a period of up to 3 months following the date on which previously unknown or unavailable Required Counterparty Feedback has been provided to the Applicant by the transaction counterparty.

4. Effectiveness of the Order – The exemptions provided pursuant to paragraphs 1, 2 and 3 shall cease to be available after April 1, 2019.

“Kevin Fine”
Director, Derivatives Branch
Ontario Securities Commission

Exhibit A

Form of Quarterly Compliance Report

Section 1 Definitions

1. Terms defined in the exemptive relief dated September 28, 2016, as raised on September 28, 2017 and on September ●, 2018 (the “Exemptive Relief”) have the same meaning in this Compliance Report.

2. In this Compliance Report:

(a) “Counterparty” means a counterparty for the purposes of this compliance report is any counterparty to a derivative transaction that is principal (not agent) to the derivative (e.g. where a fund manager executes transactions on behalf of a number of underlying funds, each fund should be included in the compliance rate calculation).

(b) “All Counterparties” means Counterparties to transactions reportable under Regulation /Rule 91-507 – Trade Repositories and Derivatives Data Reporting (91-507).

(c) “New Counterparties” means Counterparties to transactions reportable under 91-507 that were entered into at any time during the relevant period but with whom the reporting counterparty had previously never entered into a reportable transaction.

(d) “Compliant Counterparties” means Counterparties who have provided the Required Counterparty Feedback (as defined in the Exemptive Relief) to enable the reporting counterparty to meet its obligations under 91-507. This would include the counterparty’s consent (if required by applicable law), the counterparty’s LEI, the broker LEI (if applicable), and information to determine whether it is a local counterparty.

Section 2 Information on the Delivering Counterparty

1. Provide the following information with respect to the Delivering Counterparty:

Section 3 Compliance Progress

Please see Appendix A.

Section 4 Relief Related to Blocking Laws and Relief Related to Consent Requirements

1. Provide, at a minimum, the following information:

Section 5 Efforts to Obtain Required Counterparty Feedback

1. Please provide information regarding your efforts to obtain the Required Counterparty Feedback.

2. Please provide information regarding efforts to obtain the Required Counterparty Feedback from New Counterparties and describe internal policies regarding acceptance of New Counterparties that are not Compliant Counterparties.

3. Please provide information regarding efforts to obtain Required Counterparty Feedback from existing non-compliant Counterparties.

4. Please provide information regarding efforts to correct any reporting made in relation to a transaction after Required Counterparty Feedback has been obtained; including the time required to backload and report the Required Counterparty Feedback once the previously unavailable information has been obtained.

Section 6 Any Additional Information

Please provide any additional information that would assist in explaining the rates of non-compliance. For example, compliance rates may be affected by the type of counterparty (e.g. sophistication, institutional vs. retail/commercial), geographic location of counterparty, or asset class (e.g. foreign exchange).

Please provide any other additional information you believe would assist in improving our understanding of the obstacles to full compliance.

Appendix A: Compliance Progress