How will the new EMIR REFIT reporting requirements impact the EU and the UK markets?


Earlier this year, the European Securities and Markets Authority (ESMA) published the final reporting validations for EMIR REFIT for European-based firms.

According to Deloitte, the goal of the refit is to further enhance the harmonisation and standardisation of reporting under EMIR, which supports both EMIR’s main purpose of monitoring systemic risk as well as containing costs for market participants and trade repositories.

The EMIR REFIT rules will go live in Europe on 29 April 2024 and 30 September 2024 in the UK. How are they going to impact each market respectively?

“The new reporting regime introduces a number of novelties that will have an impact on how reporting counterparties operate and exchange information with each other, as well as enhanced scrutiny from regulators,” said George Markides, senior manager of the compliance support department at MAP FinTech.

Markides claims that one of the most significant changes EMIR REFIT introduces is the additional data points and values reported that will be subject to reconciliation for dual-sided reports – which is the data contained in reports submitted by 2 counterparties of the same trade in the EEA or UK should reconcile.

He added, “The reconciliation exercise is performed at the TR level, who will share the reconciliation results with the reporting entities and regulators alike. Crucially, valuations of derivative contracts with EMIR will become subject to reconciliation.

Additionally, Markides stressed that the new system establishes the Unique Product Identifier – a concept that was introduced with EMIR V1 but was never implemented – which will be required from day one of the new reporting regime.

He explained, “When an EMIR-obliged entity launches/trades a non-listed OTC derivative it needs to include in its reports the UPI which will serve as an identifier for the said derivative. The designated Authority for issuing the UPIs is ANNA Derivatives Services Bureau (ANNA-DSB), the database is accessible for free but for the issuance of a new UPI, ANNA DSB will begin charging a fee.”

The MAP FinTech manager expressed that the REFIT also introduces more granular outgoing messages generated by the TRs and shared with regulators and reporting counterparties alike.

That said, he claims said messages will include data such as number of submissions, number of rejections, outstanding positions and trades with outdated or no valuations or collateral information, reconciliation status or abnormal values reported.

The reports will then assist reporting entities to correct their reporting and allow regulators to have a more immediate and complete picture regarding compliance with the reporting regime. 

He concluded, “The above and many other aspects of the new reporting regime will create an acute need for reporting counterparties to enhance oversight and monitoring of their reports to prevent, to the extent possible, any lapses.”

Real regulatory divergence

In the view of Francis Stroudley, head of transaction reporting and director at Novatus Global, said that the EMIR REFIT is one of the first regulations where we are seeing true divergence in the UK and EU regulatory frameworks.

He said, “Divergences include a difference in reportable fields, control framework requirements as well as two separate timelines for delivery. This requires firms to address the two regimes (UK and EU) with separate (but inter-linked) projects, with separate operational processes (at least for the first 6 months after EU go-live whilst the old FCA regime is still in place.”

He added that the differences require firms to have almost two separate projects for a similar delivery, with two separate processes required.

Stroudley also stressed that the EMIR REFIT marks another shift which is global co-operation and consistency.

He said, “The focus on creating a consistent derivative data set across different regulatory jurisdictions demonstrates a more globally unified approach to regulation – the data will be used for a wide variety of purposes, including potentially setting new market standards. We believe that how regulators work together on this will be interesting to see unfold.”

Alongside these shifts, Stroudley professed that the EMIR REFIT is creating a major operational headache for companies.

“The sheer size and scale of new and updated requirements, the new data feeds required as well as complexity of rules means that REFIT is a major undertaking. The delivery requires effort from across the organisation, and with this there is a high risk of getting it wrong.There will likely be a large day 2 list which also needs work, meaning ongoing improvements, which means that REFIT will continue to be a headache for a while. The time and effort spent on REFIT also means that other discretionary and non-discretionary projects may slip,” said Stroudley.

There will also be increased regulatory scrutiny, which raises the stakes for businesses, he claims.

In this, regulatory bodies have been clear they will be reviewing the data submitted to ensure it is correct. Patience for misreporting has worn thin, and there is a risk of enforcement action for firms who consistently get it wrong. This, said Stroudley, means that strong control functions and engaged compliance teams are required to help minimise incorrect reporting.

The regulator will also be key, as it will now not only be focusing on the big banks. Stroudley said, “Increased in delegated reporting control requirements demonstrate that regulators are expecting high levels of control for smaller firms. All firms must now be able to demonstrate robust and comprehensive control frameworks to identify and resolve reporting errors.”

The last point expressed by Stroudley is that technology is now undeniably critical.

He explained, “Firms need technological solutions to help identify errors, so that they can be remediated in a timely manner Given the volume of trading, and in-scope fields, manual controls are not fit for purpose. In addition, enhancements in technology (e.g. through AI) will support root cause analysis in the medium term. However, the immediate focus is reviewing all submissions to ensure that they are correct.”

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