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The European Market Infrastructure Regulation (EMIR) was introduced by the European Securities and Markets Authority (ESMA) in 2012 to enhance transparency and reduce risk in derivative markets. But at the end of 2022, the ESMA announced EMIR was getting a new look: the EMIR Refit. 

The EMIR Refit, aka EMIR 3.0 in the industry, is bringing wide-scale changes to transaction reporting, data sharing and report formatting processes both in the EU and the UK. This will increase the complexity of reporting derivatives to trade repositories (TRs) and entail a range of operational and technical challenges. 

It’s imperative that businesses act now, with less than 100 days until the EU deadline (end of April) and the UK deadline (end of September) also looming. Although there is significant awareness amongst businesses that the EMIR Refit deadline is fast approaching, we’re finding that the approach taken by impacted firms to get their houses in order is inconsistent at best. 

The reporting changes that need to be made under EMIR Refit are significant and won’t simply be rolled out with a few weeks of internal discussion and planning. The most proactive organisations already have projects underway to ensure that their regulatory processes are in place and tested ahead of the deadlines. But why is the new regulation so significant?

A sea of change

Increased volume of data fields required

The volume of data fields is increasing significantly. The total number of fields that firms will need to report on is rising from 129 to 203, including 89 brand-new fields – just 59 have been left unaltered. Firms therefore have significant operational and reporting changes to implement in order to remain compliant. 

Amongst the additions is a new ‘Event Type’ field, which aims to amplify transparency around the lifecycle of a trade and will work in tandem with the existing ‘Action Type’ field. 

While this will give regulators much greater insight into derivative transactions, it also creates a whole variety of event and action type combinations for firms to use when reporting, adding to an already complicated process. 

A new look format for reports: ISO 20022

The way in which data needs to be reported is also changing. One of the main changes under the new regulation is the introduction of reporting that follows the ISO 20022 XML format. 

ISO 20022 is an international reporting standard that creates a more structured way of sending data to TRs and, as the Bank of England describes, “has the potential to create a single common language for most payments globally.” 

The idea is that this common language will harmonise derivative reporting globally and also make it easier for firms to detect market abuse. 

To adhere to this new standard, firms will need to use the fully standardised ISO 20022 XML format after the April/September deadlines. They will be required to ensure their reports meet these requirements, which will directly – and significantly – impact the generation of Unique Transaction Identifiers, alongside having to integrate the newly introduced Unique Product Identifiers. 

This in itself will cause obstacles for firms, given that reporting processes will need to be updated to ensure that data is captured and reported on accurately. This is especially true for those firms who currently use CSV and Excel formats. 

But what if firms aren’t ready to implement these changes by the deadline? 

There has been no sense of a ‘grace period’ being offered by regulators. Firms have known about EMIR Refit and the associated deadlines for around 18 months, so there seems little likelihood of them being able to plead for a ‘bedding in’ period. Because of this, they need to take action now or risk regulatory penalties.

How can firms take action? 

It is no longer sufficient for firms to simply have a compliance system in place. Rather, there is increased scrutiny being placed on how effectively these systems can monitor the accuracy of what is being reported. With the EMIR Refit coming into play, financial firms need to have the right tools in place if they want to gain a competitive advantage. 

As regulators expect more sophisticated record-keeping, one-dimensional compliance systems are unlikely to offer a long-term solution. As a result, more specialised, integrated solutions that span trading activity can allow businesses to move away from the strategy of simply meeting their minimum regulatory requirements and, instead, start to pursue greater efficiency and regulatory robustness through integrated digital tooling.

When it comes to the EMIR Refit, the six-month date difference in deadlines between the EU and the UK adds further complications for entities who operate in both jurisdictions. As such, it is advisable to look at compliance solutions that adhere to the new reporting requirements across regions and can help firms manage their obligations in line with the relevant deadlines. 

It’s also important to note that while firms have no choice but to comply with new regulations, it’s unrealistic to think that adapting existing regulatory processes is going to be a labour of love. 

If you don’t have the internal resources to support a smooth and efficient transition in time to meet the deadlines, working with an external consultant or technology provider who can guide you through what needs to be done and help with the ‘heavy lifting’ could be a wise investment. 

Fail to prepare… 

For financial institutions, it’s not simply a matter of keeping up with the changes associated with EMIR Refit, but getting ahead of them. To navigate the shifts in the amount and format of data that needs to be reported, firms should consider integrated compliance tools that are ‘REFIT ready’ and go beyond meeting minimal requirements.

Historically, the handout of hefty fines by regulatory bodies has often prompted firms to implement the most readily deployable compliance systems available, rather than taking the time to seek the most suitable solutions. 

However, the EMIR Refit is a regulatory shift of such significance that it requires a specialised and robust approach. Where possible, this should involve a robust compliance strategy that has process automation and operational efficiency at its core. 

It can be easy to ignore deadlines. But failing to prepare for the EMIR Refit could leave firms facing far more regulatory problems than they bargained for.