The European Market Infrastructure Regulation (EMIR) Refit is designed to amend and simplify European Markets infrastructure. It has brought with it major changes, particularly regarding reporting standardisation on the ISO 20022 standard and a significant increase in reporting fields from 129 to over 200.
The amendment, known as the EMIR Refit will also necessitate more granular reporting and the entirely new requirement to notify the national competent authority of any failures during the reporting process. It was initially published in May 2019 and started the stepwise implementation in June 2019 with clearing obligations. The go-live of the new technical standards (RTS and ITS) for reporting obligations is set to finish implementation in Q4 2023.
EMIR outlines reporting requirements for over-the-counter (OTC) derivative contracts, reporting requirements for derivative contracts (OTCs and ETDs) and uniform requirements for the performance of activities of central clearing counterparties (CCPs) and trade repositories (TRs).
The framework was introduced after the 2007-2008 financial crisis to improve market transparency and control risk. However, its complex provisions and technical language often make it hard to understand fully.
Here, we look at five ways to prepare for EMIR refit and ensure compliance.
Reporting under EMIR refit is among some of the most challenging in the world. Ensure you understand what is to come.
Quantity of data: The number of fields and requirements to match trades is enormous. The number of reporting fields is set to increase from 129 to over 200. According to the Final Report published by ESMA, only three data fields will be removed while 77 data elements have been introduced.
Communication: Counterparties must agree on responsibilities and obligations, and this must be clearly documented.
Clearing thresholds for FCs and NFCs. EMIR Refit sets clearing thresholds of €1bn for credit derivative contracts and equity derivative contracts and €3bn for interest rate derivative contracts, foreign exchange derivative contracts and commodity derivative contracts and others. If an FC or an NFC does not calculate its positions against the clearing threshold, or the result of the calculation exceeds the clearing thresholds, FCs and NFCs need to immediately notify ESMA and the relevant competent authority. These counterparties will become subject to the clearing obligation for the OTC derivative contracts entered into, or novated, from four months following the notification.
Changes to reporting obligations for NFCs. FCs are obligated to submit reports for NFCs that fall below the clearing thresholds, known as NFC-s, in cases where they are a counterparty to derivative trades. Trades between an NFC- and NFC+ still require both counterparties to report their side of the trade. It is the responsibility of the NFC to calculate if it meets or exceeds the clearing threshold. An NFC must provide relevant trade and corporate details for the FC to submit an EMIR report on its behalf.
At a minimum, a transaction needs to contain Counterparty Data, including name, country of incorporation, and unique identifiers. It must also include common data.
Aligning with international standards, such as CPMI-IOSCO, fosters global data harmonisation and facilitates compliance for entities subject to derivative reporting requirements in non-EU jurisdictions. Common draft regulatory technical standards specify supervisory procedures, including the levels and type of collateral and segregation arrangements, to ensure initial and ongoing validation of risk-management procedures.
End-to-end reporting in the ISO 20022 XML industry data standard is designed to deliver a harmonised and consistent approach for EMIR reporting. A fully standardised format for reporting will eliminate the risk of discrepancies due to inconsistent data. Data quality is a cornerstone of the technical requirements for data validation and data reconciliation processes that take place at the TRs once derivatives are reported to them.
There is a timeline for setting up data access for authorities. ESMA includes references to a standardised type of information that must be adhered to.
At present, there is no definitive timeframe for when EMIR Refit’s reporting requirements and technical standards will be implemented. Because the technical requirements are vast and complex adhering to EMIR Refit regulation can appear challenging. At Regnology, we can help make that task easier by providing end-to-end reporting that ensures compliance with EMIR and other international standards.
For more information on how we can help you understand EMIR Refit reporting, book a demo now.
To go further, join our webinar on September 19 where we will dive deeper into what is needed to get prepared for the EMIR Refit go-live. Register here.