Navigating the new terrain of EMIR Refit – Are you prepared for the April deadline?

Recognising the need for a streamlined and more transparent regulatory framework, the EMIR Refit initiative seeks to improve the data quality of reporting and enhance global data standardisation.

This regulatory update represents a significant change in the approach to derivatives trading and risk management, encapsulating a broader initiative to modernize financial markets and safeguard against systemic risks. The changes introduced by EMIR Refit are designed to address specific areas within the derivatives trading arena.

We outline the six major changes that will take place under EMIR Refit:

1. ISO 20022 XML Format Adoption: Aligning EMIR reporting with the globally accepted ISO 20022 XML standard aims to reduce discrepancies in data reporting, fostering a more uniform and efficient reporting process.
2. Unique Product Identifier (UPI) Introduction: The UPI standardisation will allow for the effective categorisation and identification of derivatives, enhancing the ability of authorities to assess systemic risk and monitor trading activities more effectively.
3. Unique Transaction Identifier (UTI) Standardisation: Aligning with international standards for UTI generation enhances global data harmonisation, facilitating a more coherent analysis of transaction data across jurisdictions.
4. Legal Entity Identifier (LEI) Validation Changes: By focusing LEI validation on the reporting counterparty and the entity responsible for reporting, the process aims to streamline data verification and improve the reliability of reported information.
5. Revised Reporting Lifecycle Events: Introducing an “Event Type” field aims to provide more detail on the specific business event that triggers a report, thereby clarifying the reporting process and increasing transparency.
6. Changes to Reportable Fields: The significant increase in the number of mandatory and conditional reportable fields, including the introduction of new fields and the removal of some existing ones, reflects a comprehensive update to reporting requirements. This change is designed to capture more relevant data points, improving the overall quality and utility of the data collected.

Together, these updates to the EMIR framework are designed to:

• Enhance Market Transparency: By capturing more detailed and standardised data, EMIR Refit aims to provide regulators and market participants with a clearer view of the derivatives market and its associated risks.
• Simplify Compliance: The introduction of standardised reporting formats and identifiers, along with the streamlining of validation processes, seeks to reduce the administrative burden on market participants, making it easier to comply with reporting obligations.
• Improve Data Quality and Risk Management: Enhanced guidelines for data validation, the introduction of new data fields, and standardised identifiers all contribute to improving the accuracy and integrity of reported data, which is crucial for effective risk management and regulatory oversight.
• Facilitate Technological and Infrastructure Upgrades: The changes necessitate significant technological upgrades and adaptations, encouraging investment in advanced IT systems capable of handling the new reporting requirements and contributing to a more resilient financial infrastructure.

Preparation Is Key:

As we approach the April 29 deadline for Europe, it is important for financial institutions and all market participants to thoroughly assess their current operations and make the necessary adjustments to align with the EMIR Refit requirements. This includes the following:

• Understand New Reporting Rules: Ensure familiarity with the updated reporting requirements. Determine necessary changes to internal processes for compliance, especially regarding misreporting notifications.
• Agree on Reporting Level: If reporting at the position level is desired, secure agreement from all involved parties.
• Monitor Regulatory Updates: Keep an eye on new or revised guidelines, validation rules, and related regulatory publications.
• Assess Self-Reporting Processes: Review and enhance systems and procedures to accommodate new and adjusted data fields, as well as extensive interpretive guidance. Evaluate if the current reporting model remains effective under new standards.
• Discuss With Delegated Reporting Agents: For those using voluntary delegated reporting, discuss the updated rules and re-reporting obligations with your agent. Ensure they have all necessary information from you and revisit the terms of your existing Reporting Delegation Agreement.
• Prepare for Misreporting Notifications: Plan how to receive and evaluate information to fulfil misreporting notification obligations. Effective internal processes in place to deal with tolerance reports, fail and error reports.
• New Trades Post Refit: All new trade lines are subject to the new XML and formatting post EMIR Refit and subject to the increased scrutiny. Legacy trades will have 180 days to be converted/modified to the new XML format. Important to finalise discussions with your delegated submitter as to when the conversion will take place.

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