If you are a CCO at a UK investment firm in scope of the European Market Infrastructure Regulation (EMIR Refit), you may be questioning whether you have everything in place for the fast-approaching deadline of 30 September 2024.
Here at fscom, we know many firms have already started to prepare and are on track to meet the deadline. But we also see some firms at risk of falling short due to competing priorities and to the resource-intensive complexities that the UK EMIR Refit rules entail.
So, if you are a firm that risks missing the deadline, what should you focus on with the little time remaining?
As regulatory experts, we understand your concerns. In this article, we will share our compliance expertise and help you understand what you need to have in place for the upcoming deadline, including the most common challenges, and how we can help.
Looking for help on meeting your UK EMIR Refit obligations? Contact fscom today and discover how we can help you reach compliance.
What to have in place for the UK EMIR Refit deadline
The most common challenges are often not having a clear picture of where you’re at with your EMIR Refit compliance and the delays on the data-reporting and technology-implementation elements. Therefore, it’s crucial to understand the requirements and the obstacles to have a realistic assessment of the situation and plan accordingly.
Here are the key areas we see many firms struggling to understand and implement.
A clear, communicable standing on your UK EMIR Refit compliance
To start, firms should have a clear, communicable position of where they stand on their UK EMIR Refit compliance programme. This can enable you to get a better view of where you are already compliant and which areas you still need to address.
You then want to ensure your programme documentation is up to date. Once you have a better understanding of your position and updated documentation, you can create a clear plan that aligns with realistic timelines, rather than the aspirational goal of 30 September 2024.
An understanding of the grace periods and compliance timelines
You may actually have more time than you think to meet EMIR Refit compliance.
For derivative trades entered into before 30 September 2024, you will have a six-month grace period to adjust your reporting so older derivative contracts can meet the new requirements. This means you have until 31 March 2025 to bring your reporting requirements into compliance with the updated EMIR Refit framework.
However, any new derivative trades that take place on or after 30 September 2024 must comply with the new regime immediately, and no grace period applies.
ISO20022 formatting
The biggest challenge we see firms struggling with is the introduction of the ISO20022 for the standardisation of data transmission to improve reporting and data quality. This is because the new standard requires firms to provide more enriched data and ensure it meets the new reportable field requirements. However, with the widespread use of legacy platforms (e.g., CSV), this is not always as simple as it sounds.
In particular, adhering to the ISO20022 XML format and ISO Technical Standards (ITS) means reviewing how you convert data and report content. This also entails understanding how to clean the data if you draw it from a variety of sources to ensure the derivatives reporting format meets the new ISO standards.
Trade Repositories (TRs) also need to ensure their reconciliation processes can read and manage the ISO standard data format. This enables them to meet accuracy, verification and regulatory standards, ensuring they can execute and validate reconciliations on time.
Unless you handle the transition carefully, the data-formatting changes are significant and can impact your internal systems, software and workflows. This requires firms to have extensive testing and preparation in place, especially to address less-common scenarios, like incompatibility with specific types of software. Robust oversight and effective change management can help ensure a more smooth transition.
Use of Unique Trade Identifiers (UTI) when reporting trades to TRs
Another important though complex part of the UK EMIR reporting regime relies on trade identification with a globally recognised UTI. This ensures consistent reporting on derivative transactions across all the parties involved (e.g., TRs, counterparties, regulators) to avoid discrepancies, like duplication.
The EMIR Refit rules reduce the reporting burden for non-financial counterparties (NFCs), which no longer have direct reporting obligations for trades with financial counterparties (FCs). NFC+ (firms that exceed the clearing threshold) will still need to report their own trades unless otherwise agreed.
The EMIR Refit rules determine which party is responsible for generating the UTI in most cases and follow the reporting hierarchy established in regulatory technical standards (RTS). In exceptional circumstances (i.e., where a scenario isn’t covered), the party with a Legal Entity Identifier (LEI) that comes first in alphabetical order will be responsible for generating the UTI.
You will also need to adhere to the new rules on UTI generation. This means that previously agreed upon UTI generation responsibility may now change and shift to another party.
Once you have established clear processes for UTI generation and management, you need to train staff and communicate the changes to ensure a smooth adoption of EMIR Refit rules in your day-to-day operations.
Implementation of Unique Product Identifiers (UPI) to identify derivatives
Another newly introduced identifier is the UPI, designed specifically for derivative products. It improves (and complements) existing asset identification, like the International Securities Identification Number (ISIN) and the Classification of Financial Instruments (CFI) codes.
The UPI provides the detailed characteristics of derivative products to ensure more precise regulatory reporting. It combines information from ISIN, CFI and other sources. The ISIN remains applicable for assets traded on a trading venue (e.g., an exchange), while the UPI is applicable in all other cases.
The Derivatives Service Bureau (DSB) is the designated issuer of the UPI. It is necessary to embed their UPI library into your systems, so you can access and use the UPI database before the deadline. This ensures you can retrieve UPIs in real time for the go-live date.
A crucial aspect is the preparation phase of setting up the UPI library. You can access the DBS to obtain test data you can use for end-to-end testing. This can help ensure that all UPI systems and processes to UPI retrieval and reporting are functional and compliant with the EMIR Refit rules before the go-live date, to avoid complications which may compromise compliance later on.
A back reporting plan
Finally, back reporting will need to be done in the six-month window after the go-live date.
We know that the vast majority of firms depend on counterparties to do delegated reporting on their behalf. If you also have a counterparty responsible for your reporting, it is important to engage with them to plan this work and ensure it is being taken care of to meet the back reporting deadline.
How fscom can help
These new rules will create significant change to your firm’s technology and infrastructure, requiring detailed testing and scrutiny. Undergoing this alone with so little time left can put undue pressure on your teams and risk oversight and sanctions.
At fscom, we can help you meet the EMIR Refit obligations in the following ways.
- We can undertake an independent review of your business readiness and activity to date. This means you can have greater clarity quickly on what areas already meet compliance and what you still need to address.
- We can help update your documentation, so you can communicate your compliance position and prove to regulators that you are actively working towards compliance.
- We can help test technology and data-reporting implementation, so you can be ready to comply with the changes without major disruption to your systems.
- We can help you plan for back reporting, so you and your counterparties can meet the deadline.
- We can outline a blueprint for delivery in the transition period.
Take action on your UK EMIR Refit compliance today
If you are not entirely confident in your firm’s ability to meet the EMIR Refit deadline, seek to understand to what extent you meet compliance and when you can realistically deliver. This includes ensuring you comprehend and are actively managing the technology challenges, and you engage with your reporting counterparties to plan for back reporting.
If you are preparing for the EMIR Refit UK deadline and need assistance to review your progress, validate the content of your reporting, or test your technology implementation, contact us today and speak to one of our regulatory experts.
