From the 24th April 2024, the financial markets will experience a significant shift with the application of the revised EMIR Refit (regulatory fitness and performance programme) rules, an integral component of the European Commission’s “Better Regulation” agenda.
LEI Worldwide, which helps companies become fully compliant with LEI regulatory requirements, has recently offered a guide for firms navigating EMIR Refit and LEI reporting.
Originally introduced in July 2012, the European Market Infrastructure Regulation (EMIR) was aimed at enhancing transparency and reducing risks in the financial markets through standardisation. Post-Brexit, the UK has its own version, UK EMIR, set to follow suit in September 2024, with detailed guidelines available through the Financial Conduct Authority (FCA).
What’s new with EMIR Refit?
The updates are pivotal, with enhancements and tighter controls over standardisation being at the forefront. Key areas such as OTC derivative products, mitigation techniques, and reporting obligations will see substantial changes. A notable requirement is for financial institutions to work closely with their counterparties to ensure all Legal Entity Identifiers (LEIs) are current.
These modifications will lead to an increase in reporting fields from 129 to 203 and a transition to the ISO 20022-XML format for data transmission. Under EMIR, EU counterparties are obligated to submit mandatory regulatory reports for derivative contracts via a Trade Repository approved by ESMA or the FCA in the UK. These reports will be subject to quality checks and analysis by regulators to enforce compliance and monitor systemic risk, highlighting the role of the LEI in promoting transparency and mitigating risk by standardising and making entity and counterparty data more accessible.
The significance of the LEI in EMIR Refit
The LEI, governed by the global standard ISO 17442, requires each reporting counterparty to be identified by a unique 20 digit code. The EMIR Refit imposes stricter data quality rules, including the responsibility to keep LEIs up-to-date, thus underscoring the importance of maintaining an active LEI status. The lapse in LEI renewals has been a recurring issue, but with the new refit, there’s an added emphasis on the accuracy and timeliness of LEI renewals, as outlined in Articles 208 and 211 of the ESMA Guidelines for reporting under EMIR, published in October 2023.
Actionable steps for compliance
Financial institutions subject to the EMIR refit must ensure their LEIs are maintained, active, and managed efficiently. Utilising tools such as single dashboards with features like system alerts, lapsing notifications, watchlist tools, and consolidation features can significantly ease the burden of monitoring and updating LEIs. For instance, a comprehensive watchlist tool can facilitate the tracking of counterparties’ LEIs, ensuring they remain current, thereby simplifying the monitoring process
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