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Written by Joseph Keep
Compliance Analyst

The European Market Infrastructure Regulation (“EMIR”) is a UK and EU framework for over-the-counter (“OTC”) derivatives, central counterparties (“CCPs”) and trade repositories. It had its origins in 2009 following an assessment of the role of derivatives in the financial crisis and an aspiration to increase transparency and better manage credit and operational risks.

Adopted in 2012 and effective from 2014, certain entities that trade in OTC derivatives have been required to submit a record of these transactions to a trade repository (the “Reporting Obligation”) and implement risk management measures such as centralised clearing and reconciliation mechanisms. The scoping provided by the legislation is broad and can draw in entities across the globe, including counterparties not authorised by European national competent authorities or which are not connected to the financial services industry.

Since 2014, the EU, and now after Brexit, the UK, have been amending rules to further achieve these goals. This has been achieved by the EMIR Regulatory Fitness and Performance Program or REFIT. The last round of amendments in 2020 introduced new classification types for counterparties and updated reporting obligations to match these classifications. Whilst the UK and EU have moved in step with the implementation of these regulations, the 2024 EMIR REFIT will be the first, albeit minor, separation in regulatory oversight of OTC derivatives between the UK and the bloc. With the UK implementation table delayed by six months as well as a new, optional, input field for reporting trades to Trade Repositories, the UK and EU will now become misaligned.

UK EMIR REFIT 2024: changes to the Reporting Obligation

The EU changes took effect on 29 April 2024, and UK firms have been put on high alert for the impending changes to the UK Reporting Obligation regime that takes effect on 30 September 2024. Firms need to be aware that changes will apply to the reporting clarity expected by Trade Repositories, and this will require affected firms to engage actively with their monitoring and reconciliation systems to ensure the newly required information is made available to their trade repository and counterparties, and that the firm can also monitor these updated fields in the event of errors or omissions.

The key areas that are being amended include:

  1. Trade reporting clarity – trade reports will now contain 204 optional fields, of which 149 are reconcilable;
  2. Trade reporting format – the FCA expects trade reports to be submitted in the ISO20022 XML format;
  3. Trade reporting errors – notification must be submitted to the FCA when reporting entities encounter material errors or omissions in their reports; and
  4. Unique Product Identifiers (“UPIs”) – A new mandatory product level identifier for derivatives to replace the ISINs currently in use.

The transition period has been implemented to enable firms to update any outstanding OTC contracts to the new format without regulatory breach. With this in mind, when preparing for the implementation of UK EMIR REFIT, firms should be cognisant that there is no transition period to allow for a gradual implementation for trade reporting of new contracts and firms should be adjusting their systems now in order to ensure that from 30 September 2024, all new trades being reported comply with the new standards.

What has been made clear by both regulators and leading industry groups, such as the International Swaps and Derivatives Association (“ISDA”), is that the new reporting requirements will require firms to have a more precise understanding of the transactions being undertaken. UK EMIR REFIT 2024 mandates not only additional information for Trade Repositories but also more detailed data for existing fields. The increase in reportable fields from 129 to 204 significantly changes regulatory expectations for reporting entities, introducing new requirements such as the reporting of product types such as underlying cryptoasset details, and directionality in certain types of swaps. In tandem with this, there has been a jump from 53 to 149 reconcilable fields in trade reports which may cause an initial increase in reconciliation breaks for operations and compliance teams to be monitoring and amending.

How can you prepare?

Firms should undertake a gap analysis of their trade reporting processes. Firms that complete their trade reporting internally should work with their trade reporting and operations teams to ensure they are trained for the increased number of reporting fields, including new information pipelines between front and middle offices. New data will also include the necessity to obtain and maintain a record of unique product identifiers that will be required as part of the updating trade reporting format.

Since the arrival of the EMIR Reporting regime, firms that are bound by the requirements have been able to outsource their reporting operations but are unable to outsource their obligation of responsibility for timely and accurate reporting. Prior to the implementation date, those outsourcing their trade reporting should ensure the following:

  1. That the requisite data is available to their outsource provider in order to make accurate trade reports; and
  2. Prior to the arrival of the new rules, firms should be engaging their service providers to ensure they have adequate operational and system interoperability for the new reporting requirements.

Finally, firms should prepare their breach monitoring systems due to the new obligations for notifying the FCA. Firms will be expected to notify the FCA when there are material errors or omissions with their trade reporting. For firms now operating under the new requirements in the EU, which has implemented more prescriptive, threshold-based rules, the FCA’s approach will require firms to take on a more qualitative approach, making a notification to the FCA regarding a material level of errors and omissions. Guidance in the recent FCA EMIR REFIT Q&A notes that firms should be assessing the materiality of any errors and omissions based on the business’:

  • Size;
  • Nature, and
  • Complexity.

Summary of Changes:

Format Unspecified but usually CSV or FpML ISO20022 XML ISO20022 XML
Number of reporting fields 129 203 204 (1 additional optional field)
Reconcilable Fields 53 149 149
Product Identifier ISIN UPI Required UPI Required
Legal Entity Identifier Not required Required Required

Further reading

The FCA has published a microsite on UK EMIR. Within this, there is a section on the Reporting Obligation that includes detail on the changes that will take effect on 30 September 2024.

About the Author

Joseph joined RQC Group in June 2023 as a Compliance Analyst. Before that, he worked as a client liaison and was part of the operations team at a boutique stockbroking house. He has experience in fundraising in public markets, market surveillance, and trade operations. Joseph is currently studying for a CISI qualification in derivatives.


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