EMIR Refit: ESMA Strikes Back

Bernardo Castel-Branco, Ben Shenkin

On 7th October, EMIR Refit (European Markets Infrastructure Regulation) technical standards were published in the Official Journal of the European Union. This marked a significant milestone in the European Securities and Markets Authority’s (ESMA) quest for greater transparency and standardization of the European derivatives market. The announced changes are substantial: additional reporting fields; a new reporting schema; stricter reconciliation requirements, 6-month initial full load and the adoption of Unique Product Identifiers (UPIs). All this, coupled with a go-live date of 29th April 2024 (EU), makes for a busy year ahead. EMIR Refit is not merely another episode in ESMA’s ongoing saga for reporting quality. With material change on the horizon, this time ESMA strikes back.

Building on Data Quality Deficiencies

ESMA is not content with the quality of data submitted, which is impacting efforts to monitor derivatives risk and exposure. EMIR Refit is a direct response to ESMA’s concerns and builds on ESMA’s 2022 Data Quality Report1 by addressing 3 key findings regarding the quality of existing EMIR reporting, summarized below:

  • Non-Reporting of valuations and value of collateral exchanged, with 20% of open derivatives containing stale valuations
  • Lack of agreement and standardization between counterparties resulting in a 60% pairing rate at the end of 2021
  • Despite material improvements in the proportion of submitted reports containing validation errors (c.1% during 2021), there was evidence of ‘abnormal values’ of certain fields (e.g. valuations, up-front payments, collateral values and notional).

Under the existing EMIR requirements, buy-side firms have historically struggled to achieve the levels of data quality demanded by regulators. In Alpha’s recent 2022 Regulatory Reporting Survey2, we found that across 14 buy-side asset managers with combined AuM of >£11.5trn, reporting error rates were higher for EMIR Reporting than for comparable regimes. In addition, EMIR Reporting had, on average, the second largest remediation spend and dedicated resource commitment of participants’ primary regulatory reporting regimes over the past year.

EMIR Refit increases the challenge exponentially. Reports with errors will potentially fail new validation rules and reconciliation requirements, and will need to be corrected prior to the reporting deadline.

Overview of Key Changes

EMIR Refit not only directly impacts reporting counterparties through the additional reporting requirements summarized below, but stresses the need for buy-side firms to exercise effective oversight of delegated reporting counterparties.

EMIR Refit also introduces requirements for Trade Repositories (TRs) to provide reporting counterparties, in ISO 20022 XML format, information on daily reports and associated trade states, details of reporting rejections, reconciliation details, details of reports with missing or stale valuations, details of reports with missing or stale margins, and details of reports with abnormal notional values.

Buy-side firms will need to ensure they have a scalable operating model that can consume, analyze and address XML reports from Trade Repositories in a timely and transparent manner. Building clear lines of communication with the applicable delegated counterparties and/or trade repositories is critical in facilitating the remediation of reporting errors.

Divergence: Between a Rock and Hard Place

With EU EMIR taking force on 29th April 2024, it is expected that UK EMIR will go-live three to four months later. For firms with dual-reporting obligations, this creates a significant challenge as firms will need ensure they can accommodate two reporting schemas, with different reporting fields, for this interim period. With the UK EMIR technical standards yet to be formally approved, and the potential for deviation in the specification of reporting fields between the jurisdictions, firms will need to be wary of divergence in technical standards between EU and UK regimes. This, coupled with the requirement to undertake an ‘initial full load’ within 6 months, means firms will likely be in the process of porting current open positions into the new reporting schema on their EU EMIR flow, whilst in parallel, stepping up preparations for UK EMIR go-live. Against the backdrop of increased regulatory scrutiny and regulators becoming ‘data-driven’ institutions, the message has never been clearer to ensure good data quality from the outset.

“Diverging implementation timelines for EU and UK EMIR, and expected deviations in reporting standards, will have a seismic impact on reporting firms and their ability to successfully navigate EMIR Refit”

What Should Firms be Doing Now?

To ensure an effective implementation of EMIR Refit, firms should think about the following:

  1. Enhancing Existing Reporting: firms should look to enhance and remediate the quality of their existing reporting, address current shortcomings and set up the appropriate oversight channels to smooth the journey towards EMIR Refit
  2. Establish Change Projects: firms should establish change projects with appropriate planning, resources (including reporting specialists, IT, Compliance, Data), governance and budget appropriate for the magnitude of change brought about by EMIR Refit
  3. Quality Assurance Testing: firms should formalize and invest in their test plan and approach for new reporting logic, including provisions for UPI adoption expected from mid-2023
  4. Collaborate: To avoid the pitfalls of the implementation of previous reporting regimes, firms should collaborate between themselves, leverage industry association guidance and work with best-in-class providers

The complexity of the reporting requirements, expansion of data provision from trade repositories to reporting counterparties, and the added challenge of divergence between EU and UK EMIR altogether create a daunting 500 days ahead. EMIR Refit may have just landed, but the hard work is only taking off.

If you want further details on how EMIR Refit impacts your organization and how best to address it, get in touch with Alpha’s team of reporting specialists. We support our clients globally with the most complex regulatory reporting advisory, implementation and remediation projects.


About the Authors

Bernardo Castel-Branco

Bernardo is a Director in Alpha's Regulatory Compliance & Risk practice with 15 years of regulatory consulting experience for the Asset and Wealth Management Industry. Bernardo has a range of experience across different European regulatory frameworks and leads Alpha’s Regulatory Reporting work in the context of MiFIR, EMIR (inc. Refit), SFTR, AIFMD/UCITS, and others.

Ben Shenkin
Senior Manager

Ben is a Senior Manager in Alpha's Regulatory Compliance & Risk practice and has supported numerous global asset and wealth managers with their Regulatory Reporting obligations. Ben manages Alpha's EMIR Refit proposition covering operating model strategy, vendor selection, implementation and remediation.