Ready to REFIT: RegTech’s role in preparing FSIs for the EMIR REFIT

Matthew Ranson, Regulatory Advisory and RegTech Partner at Novatus Advisory, participated in the EMIR REFIT panel discussion, “Ready to REFIT: RegTech’s role in preparing FSIs for the EMIR REFIT”, at the recent FSTech RegTech Live Conference.

Matthew was joined by Carolyn Jackson (Katten UK), John Kernan (Regis-TR) and Hannah Meakin (Norton Rose Fulbright LLP). The panel discussed the upcoming EMIR REFIT, including firm operational challenges, regulator insights and how RegTech can support successful REFIT reporting.

Firms are faced with major challenges

The panel opened with an agreement on EMIR REFIT’s monumental scope and that it should be treated as a completely new reporting regime.

It was discussed that, originally, some market participants’ expectations were that REFIT would constitute a small change in reporting. This did not transpire, as firms are now faced with a large amount of new reporting fields, technical requirements, and reconciliation rules. The panellists agreed that firms should have already started regulatory gap analysis.

One of the challenges noted by the panel was the need to maintain two sets of reporting standards, with the EEA version going live on 29 April 2024 and the UK version on 30 September 2024. Although both versions broadly align in approach, divergence in requirements is already being identified, with these differences likely widening over time. Regulatory traceability and reporting processes must be entirely split from the outset.

Ongoing operating demands, particularly from the need to showcase robust oversight processes for voluntary delegated reporting, are expected create significant pain points for firms. Any entity that is responsible for reporting will need to submit E&O forms, whether they delegate or not, and this obligation will require firms to expend resources on reporting and reconciliation checks. Mandatory delegation will also introduce operating requirements, such as arrangements for the timely transfer of accurate data between the two counterparties. Small firms and non-financial counterparties are not in the position to conduct their own reporting, thus, delegation will inevitably occur, as it currently happens for the existing EMIR framework.

Firms must prepare accordingly

The advice given by the panel was for firms to be prepared. This preparedness needs to be two-pronged:

• • If you are responsible for the transaction reporting function in your firm, you must inform the relevant SMFs in your company of the size and complexity of REFIT, as well as the programme’s critical path, to ensure senior management designate the appropriate resources to support delivery of the reporting changes.

• • Secondly, firms must not underestimate the control framework’s significance in regulatory compliance. The regulator will question your controls and processes in place to ensure your reporting is accurate, complete and timely and can impose fines based on the maturity and effectiveness of your control framework.

The panel discussed how using technology is important to enable reporting control and reconciliation to assess reporting performance and identify any errors.

It was noted that clients often engage Novatus and its TRA Tool having realised what they use fails to meet expectations. Other tools do not perform checks against source data, and the levels of validation checks undertaken are below the standard needed to ensure compliance with regulatory requirements. Firms must understand the precise workings of their reconciliation tools, in order to defend the tool choice in the face of challenge from internal or external review.

The panel highlighted the risk of operational disruption in reporting and the need for business continuity plans especially where a firm relies on a service provider to undertake their reporting. Firms must have the right expertise internally to undertake the reporting activity or have measures in place to transfer to another provider, if the service provider fails to provide the agreed service for a given period of time.

The timeline is tight

In summary, EMIR REFIT will introduce significant data and operational requirements, which will require technological solutions to ensure appropriate third-party oversight and regulatory compliance with reporting requirements. Firms have 14 months to prepare for EU EMIR go-live, with the UK version going live soon after. The earlier EMIR REFIT work commences within firm transaction reporting functions, the lower the cost of implementation and the risk of future fines for non-compliance.

To discuss more, please reach out to Matthew Ranson (mranson@novatusadvisory.com).

Read the full conference report here.