Earlier this year, the European Securities and Markets Authority (ESMA) unveiled the final reporting validations for EMIR REFIT, targeting European-based firms.
Deloitte explains that the primary objective of this refit is to further streamline and standardize reporting under EMIR. This not only aligns with EMIR’s core mission of systemic risk monitoring but also aims to reduce costs for market participants and trade repositories.
EMIR REFIT’s rules are set to become effective on April 29, 2024, in Europe and on September 30, 2024, in the UK. So, how will these changes impact each market individually?
George Markides, Senior Manager of the Compliance Support Department at MAP FinTech, highlights that the new reporting regime brings significant changes, particularly in the form of additional data points and values for reconciliation in dual-sided reports. This reconciliation process occurs at the trade repository (TR) level, with results shared among reporting entities and regulators. Valuations of derivative contracts under EMIR will also fall under the reconciliation umbrella.
Moreover, Markides points out the introduction of the Unique Product Identifier (UPI), a concept initially introduced in EMIR V1 but never enforced until now. From day one of the new reporting regime, EMIR-obliged entities trading non-listed OTC derivatives must include the UPI in their reports. The ANNA Derivatives Services Bureau (ANNA-DSB) is designated as the authority for issuing UPIs, initially accessible for free but with future fees for new UPI issuances.
Additionally, the REFIT introduces more detailed outgoing messages generated by TRs, sharing data such as submission counts, rejections, outstanding positions, trades with outdated or missing valuations or collateral information, reconciliation status, and abnormal reported values. These reports assist reporting entities in rectifying their reporting, while regulators gain a more comprehensive view of compliance with the reporting regime.
Francis Stroudley, Head of Transaction Reporting and Director at Novatus Global, underscores that the EMIR REFIT represents a significant divergence between UK and EU regulatory frameworks. Key differences include varying reportable fields, control framework requirements, and separate delivery timelines, necessitating separate projects and operational processes.
Stroudley also emphasizes the importance of global cooperation and consistency in the context of the REFIT, as creating a uniform derivative dataset across regulatory jurisdictions signifies a more unified approach to global regulation. Regulators’ collaboration on this front will be closely watched.
However, Stroudley acknowledges that the EMIR REFIT poses substantial operational challenges for companies. The sheer scale of new requirements, the need for new data feeds, and the complexity of rules make it a substantial undertaking. Ongoing improvements and potential project delays could continue to pose challenges for some time.
Furthermore, Stroudley notes increased regulatory scrutiny, with regulators expecting high levels of control for smaller firms. All companies must demonstrate robust and comprehensive control frameworks to detect and rectify reporting errors.
Lastly, technology plays an indispensable role. Firms require technological solutions to identify errors promptly, given the volume of trading and in-scope fields. Manual controls are inadequate, and technological enhancements, including AI, will support root cause analysis in the medium term. However, the immediate focus should be on reviewing all submissions to ensure accuracy.
