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Novatus Global

EMIR Refit: Need to knows before 29 April go-live date

Implementation dates:

  • EU EMIR – 29 April 2024
  • UK EMIR – 30 September 2024

Is your firm ready for the upcoming EMIR Refit?

The European Markets Infrastructure Regulation (EMIR) was enacted in 2014 in response to the 2008 financial crash. It looks to increase the level of transparency around derivative trading.

On 29 April 2024, EMIR Refit (Regulatory Fitness and Performance Programme) will become operational, implementing various changes under this new regulatory framework. Quality enhancements and international data harmonisation are the key drivers behind the most substantial revision so far.

The main enhancements of the EMIR Refit will be in the following areas:

  • Reporting fields;
  • Life cycle reporting;
  • Upgrade to ISO 20022 messaging format;
  • Updated pairing and matching requirements;
  • Unique Product Identifiers (UPIs) and Unique Trade Identifiers (UTIs) reporting requirements; and responsibilities

What is EMIR Refit?

The 2024 EMIR Refit changes mark the first substantial divergence between the EU EMIR and UK EMIR reporting regimes. While still broadly similar in substance, the two reporting regimes will apply from different implementation dates and will contain some differing reporting requirements.

The European Market Infrastructure Regulation came into force in 2012, with the aim of implementing G20 reforms on derivatives transactions in the EU. EMIR requires, amongst other things, central clearing for over-the-counter (OTC) derivatives and reporting of all derivatives transactions. EMIR applies directly to counterparties established in the EU (EU EMIR).

Between May and August 2015 the European Commission “The Commission” carried out an extensive assessment of the European Market Infrastructure Regulation. As a result, this review led to a report published in late 2016. Although a decision was made that there was no need for a fundamental change to the core requirements already contained in EMIR. They did conclude that for non-financial parties, charities, pension funds, and small financial counterparties (SFC), the requirements were overly complex and disproportionate to larger counterparties. The Commission amended their initial regime, to remediate the problems identified from their initial assessment. This was conducted in May 2017, when they proposed a Refit programme.

In the European Union, new reporting technical standards (RTS) and implementing technical standards (ITS) (collectively known as EU Reporting Standards), along with new RTS on data reconciliation and verification (the EU Data Quality Standards), were published in the Official Journal of the European Union on October 7, 2022. Separately, the European Securities and Markets Authority (ESMA) published further guidance and instructions for EU counterparties and trade repositories (TRs) on December 14, 2022, via an ESMA Final Report.

EMIR REFIT aims to simplify and improve the regulatory framework for OTC derivatives in the European Union. This is a large scale mandatory and regulatory programme set to go-live on 29th April (EU). This is an update to the most recent publication EMIR derivative transaction reporting rules.

Firms are required to report breaches when they occur, and to summaries the breadth of these breaches to their National Competent Authority (NCA). ESMA clarifies this is a mandatory element of submission

Key Features of EMIR Refit

The 2024 EMIR Refit changes represent the first substantive divergence between the EU EMIR and UK EMIR reporting regimes. Whilst still broadly similar in substance, the two reporting regimes will apply from different implementation dates and will contain some different reporting requirements.

Life cycle reporting has changed. Several updates have been made the to current reporting of activities. The updates will address various elements of the trade’s life cycle.

As a result of these amendments, it will be obligatory that the reporting logic submitted meets the requirements of the new reporting fields.

As part of the life cycle evolution there been an increase in field number from 129 – 203. This is not all, with the increase in field submission, comes the increase of data quality. Definitions and expected values against the existing fields will demand a review.

In the United Kingdom, the Financial Conduct Authority (FCA) published its final reporting rules on February 23, 2023. These rules comprise new technical standards instruments that amend the UK EMIR and revoke the current EU Regulatory Technical Standards in the UK (the FCA Reporting Standards). Additionally, the FCA introduced procedures for Trade Repositories to ensure data quality (the FCA Data Quality Standards). The FCA also released a Policy Statement to support the implementation of these new requirements. While the UK rules are similar to the EU rules, there are key differences that warrant further examination.

The upgrade to ISO 20022 Messaging Format is an additional key feature to the EMIR Refit, this is a result of the intake of submissions in varying formats previously to Trade Repositories (TRs). The updated format to ISO 20022 message is a standardised submission and response format across TRs, in addition this will complete the NCA’s reconciliations.

Unique Product Identifiers (UPIs) and Unique Trade Identifiers (UTIs)

The EMIR Refit has introduced the requirement for counterparties (CPs) to provide Unique Product Identifiers (UPIs), and it will modify the existing Unique Trade Identifier (UTI) generation logic and waterfall-based approach.

  • The change in the UPI approach necessitates CP’s to establish a framework that:
  • Defines the UPI architecture that will be utilised.
  • Establishes a data flow for UPI retrieval that aligns with the Association of National Numbering Agencies Derivatives Service Bureau (ANNA DSB), the sole provider of UPIs.
  • Implements storage systems for retaining UPIs and their corresponding International Securities Identification Numbers (ISINs).
  • Incorporates logic for reporting either the ISIN or UPI, as only one of these identifiers can be reported, contingent upon the specific scenario.

The Unique Trade Identifier (UTI) is an alphanumeric code that enables the unique identification of each trade reported under EMIR. It plays a pivotal role in the pairing and matching process conducted by the Trade Repositories (TRs). The UTI can be generated by either of the two counterparties involved in the transaction or by a third party participating in the transaction. Specific UTI generation “waterfall” rules apply under the EMIR II and EMIR Refit regimes.

In Summary:

Reporting entities based in the United Kingdom or European Union must be conscious of the 2024 EMIR Refit reporting requirements and ensure appropriate procedures are implemented to report under the updated regulatory framework. Entities that currently handle their own EMIR reporting may need to modify their existing reporting systems and processes to ensure compliance with the new reporting regime.

Counterparties not presently responsible for reporting should be aware that EU/UK-based reporting counterparties may request additional data to comply with the new reporting obligations. Consequently, non-reporting counterparties may be required to update onboarding forms and reporting templates, for instance, to capture supplementary information.

How Novatus Global can prepare your firm for EMIR Refit

The award-winning Novatus En:ACT platform has been designed to facilitate UAT testing under any regime. Clients can upload files as frequently as they wish to obtain real time feedback on their submissions.
Our market research on EMIR Refit Implementation Readiness suggested that only 56% of respondents believed that they would be fully ready for the first implementation date (ESMA) in April 2024.
The En:ACT platform ensures that data reporting delivers 100% accurate outputs, complies with regulatory requirements, and is distributed in a timely manner.
 
We offer full reconciliation and counterparty management services. Our technology is SaaS based and has been implemented by over 65 clients in multiple regions and covers all reporting regimes as well as being ISO 27001 certified. 
 
En:ACT’s UAT Testing solution enables firms to precisely identify the error on a  transaction and field basis, with clear linkage to the underlying regulation to understand why the error is occurring. This means you can focus on fixing issues.
The En:ACT platform’s Compliance Rules Engine runs thousands of tests across 100% of trades and 100% of fields, covering all G20 reporting regimes. This is maintained by our in-house team of specialists to ensure they are always up to date.
AWS hosted to ensure rapid implementation, with all data hosted in your local region.
We would love to expand our constantly growing community, and connect you with our clients to check out how En:ACT has benefited them. Please get in touch to learn more about the En:ACT platform and its UAT testing capabilities across all regimes.
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