EMIR Refit ITS/RTS: Reporting under the new standards to start on 29 April 2024 in Europe

This article was written by Alexis Wiazmitinoff, EMEA Regulatory Reporting at Bloomberg.

What just happened with the European Markets Infrastructure Regulation (EMIR Refit)?

The much-anticipated technical standards for reporting under the European Markets Infrastructure Regulation (EMIR Refit) have just been published to the Official Journal of the European Union. This initiative is off the back of years long harmonization efforts by global regulators and ESMA to improve the quality of reported derivatives data. EMIR will be the largest of the efforts globally, with firms often referring to it as “a new regulation”.

The publication of the new standards on 07 October 2022 officially sets the compliance date for the changes to 29 April 2024, at which point firms will need to report under the new standards and start upgrading outstanding derivatives to the new format.

This publication brings forth the most extensive changes since EMIR inception:

• They bring EMIR closer to global reporting standards, delivering a certain degree of harmonization with more than a quarter of reportable fields aligning with the Regulatory Oversight Committee’s Critical Data Elements (CDE).
• They normalize reporting formats across trade repositories (TR) with the introduction of a new ISO 20022 message format for reporting, reconciling and accessing TR data.
• They address the shortfalls of the previous standards by embedding guidance provided via Q&As in law, including the new process for exchanging UTIs and reconciliation between trade repositories.
• They increase supervisory effectiveness by allowing a clearer identification of derivative trading practices with the capture of new business events, additional fields, and a new format for reporting.

Why are EMIR Refit ITS/RTS important?

After the entry into force of the level 1 text back in June 2020, these legal texts constitute EMIR Refit’s level 2 legislation. This is the next major milestone on the road to EMIR Refit go-live.

The new Implementing Technical Standards (ITS) outline the set of uniform requirements safeguarding fair competition throughout the Union. For reporting firms, they confirm:

• The implementation timeline (18 months)
• The start date for reporting under the new standards on Monday, 29. April 2024
• The grace period for reporting outstanding derivative contracts (6 months)
• The reporting of key harmonized fields LEI, UTI, ISIN, UPI, direction (replacing buyer/seller)
• The procedures required between reporting parties to fulfil their reporting obligations

The new Regulatory Technical Standards (RTS) are in fact the technical reporting requirements which will need to be met by counterparties, CCPs and trade repositories. For reporting firms, they address:

• The scope for reporting (fields and their definitions)
• The scope for reconciliation (fields for go-live and 2 years after, if a tolerance will apply)
• How to report cleared OTC and ETD trades
• Pre-requisites for reporting at position level
• Valuation reporting (including notional amount and price in scope for reconciliation at go-live)
• Collateral reporting (who is responsible for reporting and how to report)
• How to link related derivative reports (prior, subsequent and position UTI)

The extent of the details provided in these texts indicates the seriousness of EU policy makers when it comes to addressing the deep-rooted causes of poor data quality. This makes misreporting even more unforgiveable post go-live.

Advice to firms with a reporting obligation in the EU

Despite the 18-month implementation period starting 20 days after the of entry into force of the ITS/RTS, at the time of publication of this article, the industry still lacks the necessary Level 3 material to build to go-live specifications:

• Final validation rules
• Final guidelines for reporting under EMIR Refit
• Final ISO 20022 XML schemas for reporting, reconciling and accessing TR data

ESMA has confirmed it will strive to make final versions of the draft validation rules and draft guidelines available “soon after” the publication of the ITS/RTS. The draft ISO 20022 XML schemas for reporting, reconciling, and accessing data however, continue to remain under development at the International Organization for Standardization (ISO). They are currently completing a stage of harmonization to CDE standards as ESMA, CFTC and ASIC participants are currently discussing ultimate modifications and will be officially submitted for jurisdiction-specific adaptations. As of the date of publication of this article, final EU L3 material from ESMA can be expected to be published in the next few months, either by the end of the year or Q1 2023 at the latest.

Firms with a reporting obligation in the EU are therefore advised to familiarize themselves with all available rules and guidance, whether in draft or final form. As the RTS set reporting, reconciliation fields and process into law, no further change can be expected on this front until go-live. Firms should start upgrading their current logic, starting with data sourcing and reporting triggers based on the new set of event types. If started, the upgrade of validation and submission logic will have to change again when the final L3 material is published.

Firms with a reporting obligation in Iceland, Liechtenstein and Norway will have to wait for the incorporation of EMIR Refit into the EEA agreement and its transposition into their respective national laws.

Advice to firms with a reporting obligation in the UK

EMIR and EMIR Refit have been onshored and included into UK law via Statutory Instruments 2019 No. 146 (UK EMIR Refit) and 2020 No. 646 (UK EMIR). Level 2 and 3 will however have to be produced by UK authorities themselves.

The resulting FCA and Bank of England consultation closed earlier this year in February. A following policy update is expected in the coming months, and this hopefully include UK technical standards.

With no material divergence observed in the proposals published for consultation, firms with a reporting obligation in the UK should wait for the publication of UK technical standards and a confirmation of the UK reporting timeline to assert the extent of the divergence between UK and EU regimes. Given the above, firms should expect reporting under UK EMIR Refit to start at a minimum 3 months after the continent in Q3 2024.

With a delayed UK reporting start, firms with a reporting obligation in both UK and EU jurisdictions will incur higher change costs, even before any divergence in technical standards is confirmed.

Industry pain points

Bloomberg has been engaging with the industry to help tackle new and current challenges encountered ahead of EMIR refit. Firms have been vocal about the 6 challenges outlined below.

Challenge 1: Poor data quality today

EMIR refit will require the reporting of derivative reports outstanding from Monday, 29 April 2024 in the new format. Firms misreporting transactions today will face difficulties re-reporting these in the new format. This might ultimately delay and perhaps prevent the reporting of daily valuations post go-live.

Bloomberg Regulatory Reporting Services helps firms ensure a smooth upgrade today. Based on enhanced reporting quality rules, our Assurance product suite identifies report quality issues beyond TR validations and helps with remediation with limited integration required.

Challenge 2: New business logic/ data required to report under EMIR Refit

With EMIR Refit, reportable fields will increase from 129 to 203. Most notably, new business reasons for reporting will be mandated (event types) effectively extending the scope of reportable derivative transactions.

Benefiting from integrations with upstream Bloomberg systems, firms reporting via Regulatory Reporting services can substantially reduce their upgrade efforts. Upon execution, reportable trade economics are fed into RHUB and are enriched leveraging Bloomberg’s Global Data services, guaranteeing high STP-rates with minimal additional data required.

Challenge 3: Delegated reporting

Delegated reporting takes centre stage as part of EMIR Refit. Buy and sell-side firms will need robust controls in place to ensure their obligations are met.

Bloomberg Regulatory Reporting Services helps sell-side firms submit own and delegated reports to major trade repositories (TR) via RHUB. Whether above or below the EMIR clearing threshold, buy-side firms can then access those reports with no TR onboarding required. Additionally, Reconciliation at source using our award-wining Assurance product suite can help firms detect inaccuracies in reported data, over/under reporting and more.

Challenge 4: Limited staff overseeing reporting operations

The new standards require firms responsible for reporting to notify their national competent authority of misreporting as soon as they become aware, including reporting errors that would not cause TR rejection.

Firms reporting using RHUB by Bloomberg Regulatory Reporting services benefit from configurable alerts and automated reports allowing operational staff to focus on what really matters. RHUB’s end-to-end data lineage and audit-trail features, reduces investigations and root-cause analysis efforts. Our Assurance product suite detects valid but wrong reports pre or post reporting to trade repositories, leveraging industry best practices, configurable rules and built-in intelligence from our regulatory experts.

Challenge 5: Pace of change and ambiguity of regulatory requirements

Regulatory change can stem from authorities, regulators, governing bodies and supervisors. It can come from updates to legal texts, technical standards, guidelines, letters and more. Being able to keep up with the pace and complexity of regulatory change is key to ensure timely compliance to satisfactory standards.

Our reporting services teams work closely with global Bloomberg teams and the industry to help firms stay ahead of change. Additionally, our team of regulatory experts ensures the latest regulatory intelligence is embedded into our reporting and assurance product suites.

Challenge 6: EMIR refit is one thing, but what about other G20 regulations?

With “refit” and “rewrites” becoming buzzwords in the world of G20 derivative reporting, firms with reporting obligations are increasingly looking at partners able to help them report transactions across jurisdictions and under multiple regulations.

Bloomberg Regulatory Reporting Services can help firms meet their reporting requirements in North America, the UK, the European Union and in Asia. Our unified approach to transaction reporting across jurisdictions is designed to substantially reduce operational staff onboarding time and increase efficiency. Our expanding coverage includes EMIR, MiFIR, SFTR, CFTC, Canada, MAS and ASIC, with more in development to meet client demand.

To learn more about Bloomberg Regulatory Reporting Services, please contact us or visit our Regulatory Reporting Services website.