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A Year to EMIR REFIT: what should you be thinking about

EMIR Refit (ESMA version) will be live in one year’s time: 29 April 2024.

When we conducted market research on EMIR Refit Implementation Readiness in Q4 2022, it was found that only 56% of respondents believed that 18 months is enough time for implementation.

Now, we only have 12 months to go. Our experience is that although firms have started taking action, many are still behind where they should be. Below, we’ve outlined four main reasons why EMIR REFIT must be at the forefront of firms’ agendas.

  1.       EMIR REFIT imposes complex changes that requires time to understand and extensive planning.

The EMIR REFIT implementation is a huge project for any firm. The number of data fields is increasing from 129 to 203, with additional changes being made to existing fields. Firms must understand what data needs reporting, where that data comes from and then how to report it correctly.

For certain fields (e.g. action type/event type, as well as prior UTI/subsequent UTI), firms must map out their trading activity to understand the scenarios in which these fields must be populated. Requirements are then required to be drafted to ensure that all of the different trading scenarios of your firm are reported correctly. At this point, it’s also important to future proof reporting solution by considering what trading activity may be perform in the future.

Once this is considered the data this will need to be converted into the ISO 20022 XML message format. The scale of this build should not be underestimated. Firms face a build/buy decision with many vendors, such as Novatus Advisory, offering .csv -> XML converters. Indeed, according to our research, 47% of respondents expressed that the tech build to be a significant challenge, the second largest challenge for firms when implementing EMIR REFIT.

  1.       Mobilising a project team requires time.

EMIR REFIT will require input from across an organisation, including Operations, Compliance, Front Office, IT, Legal and Change teams. Securing time from these different teams, mobilising resources and starting the programme itself takes time, which ultimately detracts from the overall timeframe which should be used for analysis, business requirement creation and technological build.

Although firms’ transaction reporting experience has increased, the industry still requires support from external regulatory expertise. Our research identified that 68% of self-reporting firms still intend to use external providers for support throughout the project. The requirement for external expertise was further backed up by responses from firms who delegate their reporting, where 76% of delegators believe that their brokers need external/consultancy support.

Given the complexity of the rules, combined with the scale of work required, specialist support can aid in accelerating implementation and managing a firm’s delivery risk.

  1.       Firms are facing competing priorities and dual regime implementation technicalities.

EMIR REFIT adds pressure to firms amidst a complex and evolving regulatory landscape, with competing priorities and potential strategic changes. A solution must be designed for the firm’s model in 12 months, accounting for major system migrations or legal entity changes.

Additionally, following Brexit, there are now two iterations of EMIR REFIT: EU and UK. Due to the divergent go-live deadlines for EU and UK EMIR REFIT, dual reporting enterprises are under additional strain while implementing.

From our research, 20% of self-reporting firms are unable to manage both rule sets due to inadequate technology infrastructure.

The FCA has announced a go-live date of 30 September 2024, so firms will be reporting new data under the EU regime but using the existing model under the FCA regime during the interim period. This will pose operational challenges. The EMIR REFIT testing suite must factor in this model to ensure that existing FCA reporting is not impacted by the earlier move to EMIR REFIT under the EU regime.

Although there are currently no significant divergences between the regimes, firms should monitor regulatory updates as they may diverge in the future.

  1.       The consequences of failure to implement EMIR REFIT will be lengthy and costly.

Creating a robust technology and control framework for EMIR REFIT is expensive, but failing to implement systems effectively on the go-live date can lead to problems, costly remediation, and an increase in a firm’s risk profile and potential financial penalties.

As remediations may disrupt a firm’s operations, they may be more expensive than if businesses had successfully and effectively installed the technology in the first place.

Transaction reporting teams must clearly communicate the importance of compliance and the risks of non-compliance to secure sufficient support and avoid competing objectives or procedures for budget approvals.

So, what should a firm do?

Given the complexity of the Regulation and possible hurdles firms may encounter in the process, firms should be well underway with their EMIR REFIT Implementation. Challenges with the scale of the change, potential unexpected technological issues and the dual implementation deadline means that the risk of non-delivery is high.

Novatus Advisory are supporting firms with EMIR REFIT, and we are happy to share our insights with you. Please contact Francis Stroudley, Head of Transaction Reporting Advisory: fstroudley@novatusadvisory.com.