Navigating the EMIR REFIT: a Comprehensive Overviewhead.

As the European Market Infrastructure Regulation (EMIR) Regulatory Fitness Program (REFIT) approaches its go-live date on April 29, 2024, European financial and non-financial entities face a critical juncture in regulatory compliance. EMIR REFIT represents a substantial overhaul of derivative transaction reporting rules, necessitating meticulous preparation and adaptation from market participants. This article provides a detailed examination of the impending changes and their implications for all firms involved in derivative transactions.

Background and Scope of EMIR REFIT:

EMIR REFIT, introduced as a mandatory update to EMIR, aims to enhance harmonization and standardization of derivative transaction reporting across the European Union. It implies a significant shift in reporting requirements, impacting both technical and operational aspects of compliance. With the go-live date rapidly approaching, all firms must ensure readiness to meet the new obligations, regardless of whether reporting is conducted internally or delegated to third parties.

Key Changes in Reporting Rules:

The implementation of EMIR REFIT brings about three primary areas of change in reporting rules. Firstly, there will be an expansion of data requirements, increasing the number of reportable fields from 129 to 203. This expansion necessitates a thorough review of reporting logic, particularly in fields such as “action type” and “event type” aimed at enhancing transaction transparency. Additionally, new fields concerning counterparty details and product classification will be introduced to address past ambiguities in reporting OTC derivatives.

Moreover, compliance with the ISO 20022 XML format will become mandatory for data transmission to trade repositories, aiming to standardize technical reporting standards. However, this transition may pose challenges for firms accustomed to legacy formats. Furthermore, a phased approach to implementation will require existing open positions to meet new standards within six months post-go-live, imposing additional reporting requirements on post-trade lifecycle events.

Governance and Controls:

Given the criticality of accurate reporting, all firms must establish robust governance and control frameworks to ensure compliance with EMIR REFIT. Particularly, entities relying on third parties for reporting must exercise vigilance in overseeing reporting activities to ensure adherence to new guidelines. This includes implementing mechanisms for monitoring data quality, resolving issues promptly, and communicating effectively with national regulatory authorities.

Impact of Brexit and Divergence in Reporting Regimes:

The implications of Brexit are significant, leading to divergent timelines and requirements between EU and UK EMIR regimes. With UK EMIR undergoing its review, all firms with exposure to both markets must navigate these complexities effectively. The temporal misalignment between the go-live dates of EU-EMIR and UK-EMIR REFIT further complicates compliance efforts, necessitating meticulous planning and ongoing support to manage operational complexities.

Future Outlook and Preparation for EMIR III:

Looking ahead, EMIR REFIT should not be viewed as a standalone exercise but rather as preparation for subsequent regulatory developments. The impending EMIR III, currently under discussion, will bring further operational changes, emphasizing the need for continuous readiness and adaptability among entities in scope.

Conclusion:

As the deadline for EMIR REFIT implementation approaches, European firms must prioritize readiness to ensure compliance with the new reporting requirements. With significant technical and operational changes on the horizon, proactive measures are essential to navigate the complexities effectively. Moreover, ongoing vigilance and preparation for future regulatory developments will be paramount to maintaining regulatory compliance and operational resilience in the evolving regulatory landscape.

By Francesco di Martino, Banking Consultant at Common Management Solutions