EMIR REFIT – Trade Reporting

EMIR REFIT – Trade Reporting – Are You Ready?

What is the EMIR REFIT?

Further to the introduction of the European Market Infrastructure Regulation (EMIR) in 2012 and subsequent revisions in 2015 and 2017, the REFIT program (Regulatory Fitness and Performance Program) was instigated. The purpose of the REFIT for Trade Reporting, which commenced in 2019, has been to review the issues identified in the years since reporting obligations were introduced and to use these findings to enhance the accuracy of Trade Reporting, through improved data quality and industry standardisation.

ESMA have subsequently highlighted two specific areas of concern impacting the accuracy and completeness of Trade Reporting:

1. Timeliness of reporting – large number of trades reported past the T+1 deadline; and

2. Reconciliation – low reconciliation rates and poor reconciliation processes.

What is the timeline for EMIR REFIT changes to be implemented for Trade Reporting?

In December 2020, the FCA published a policy statement setting out its approach to EMIR REFIT. The policy statement confirmed that the FCA would be implementing EMIR REFIT in the UK, but that it would be doing so on a later timeline than ESMA. The FCA explained that this was necessary to give the UK industry enough time to prepare for the new reporting requirements. 

The current timeline is as follows:

• ESMA (Europe) - 29th April 2024; and

• FCA (UK) - 30th September 2024.

Reconciliation requirements will be phased in as follows:

• Phase 1 fields – Start date of the reporting obligation; and

• Phase 2 fields – Two years from the start date of the reporting obligation.

What needs to be implemented for Trade Reporting?

In December 2022 ESMA published Guidelines and technical documentation on reporting under EMIR REFIT. The main reporting changes are as follows:

• Reportable Fields

  There are now 203 reportable fields, an increase of 74 fields, including 89 new fields (15 fields are no longer reportable). Updates are not limited to new and redundant fields - existing fields have also been updated.

  To enhance reporting of lifecycle events, an ‘Event Type’ field has been added. The existing ‘Action Type’ describes the nature of the report and ‘Event Type’ describes the business event triggering the report. The additional detail provided by the combination of these fields should provide clarity on the lifecycle event.

  Four additional counterparty fields are added. This will require firms to store additional data on their counterparts. Should firms not currently hold these data this could prove a challenge to update existing counterparty detail and store for new counterparts. These fields are:

  • Clearing Threshold of Counterparty 2;

  • Reporting Obligation of Counterparty 2;

  • Corporate Sector of Counterparty 2; and

  • Nature of counterparty 2.

  The number of new fields and the changes to existing fields means EMIR will far exceed the number of reportable fields required for MiFIR and SFTR.

• Trade Reconciliation & Verification

  The Technical Standards in the ESMA Guideline set out new rules for Trade Repositories (TRs) for the verification and reconciliation of data, including lifecycle events.

  The introduction of explicit Inter-TR reconciliation rules will require 87 fields to be reconciled from go-live, increasing to approximately 150 fields after two years (2026). The TRs will be required to send all mismatched field details to firms on a daily basis.

  The reconcilable fields and the date from which they must be reconciled are defined in Table 2 of the Annex to the technical standards on data quality. The enhanced field definitions are expected to ensure improved reconciliation results.

• Reporting by ISO20022

  EMIR will follow MiFIR and SFTR and move to ISO20022, a standardised XML reporting structure. Currently, most firms use the CSV format for reporting and internal reconciliations, as CSV allows flexibility for resubmission and validation issues.

  The move to ISO20022 is a likely to prove a major challenge for firms but in the long run the benefit of harmonisation with other regulations and increased data accuracy should prove worthwhile. In addition, reporting to Trade Repositories (TR) and porting between TRs will be simplified.

• Unique Trade Identifier (UTI)

  Currently, UTI creation is agreed bilaterally between the counterparties, or where this is not possible, the waterfall logic as originally prescribed by EMIR is used.

  The revised Technical Standards provide detailed trading scenarios prescribing who, in each case, creates the UTI. The current bilateral approach can only be used as a fallback where the technical standards do not cover the trading scenario. The UTI must then be provided to the counterparty by 10am T+1.

  Where bilateral agreement on the UTI cannot be reached, the creation of the UTI must be determined by the alphabetical order of the firms Legal Entity Identifiers (LEI).

• Unique Product Identifier

  Since the implementation of EMIR, the quality of the Classification of Financial Instruments (CFI) data is regularly incorrect and inconsistent with the underlying trade data reported.

  In response to the need to improve data quality the Derivatives Service Bureau (DSB) has developed the UPI. A UPI being assigned to each “distinct OTC derivatives product”. The DSB are responsible for issuing new identifiers as well as maintaining the UPI library.

  Market participants will need to be on-boarded to the UPI platform to meet the REFIT go-live deadlines.

  For instruments admitted to a trading venue (ToTV) or executed via a systematic internaliser (SI) the ISIN remains the unique identifier.

How can New Link Consulting help?

New Link can provide the following consulting services to ensure compliance with the requirements of EMIR REFIT:

• Current state analysis of your reporting solution to assess additional internal system requirements for REFIT (e.g. fields and data);

• Requirements gathering and business requirements definition;

• Review of existing control framework and governance model in the context of the REFIT;

• Review of your current operating model and its appropriateness post REFIT go-live;

• Reconciliation design and build; and

• Project Management of all elements of the EMIR REFIT programme.

For further information on how New Link Consulting can assist with the implementation of EMIR REFIT in your organisation, please contact the Practice Lead for Regulatory Reporting, Andrew Hovell [ahovell@new-linkconsulting.com]