A summary EMIR Refit changes
EMIR REFIT Summary
The European Commission’s regulatory fitness and performance programme (REFIT), launched in 2012, is aimed at simplifying EU legislation and reducing any unnecessary regulatory burdens for citizens and businesses.
Alongside other European regulations, EMIR (European Market Infrastructure Regulation) has been assessed with that goal in mind and a number of improvements proposed.
These improvements are primarily concerned with addressing compliance costs, transparency and data quality.
EMIR REFIT To Date
The publication of Regulation (EU) No 2019/834 (‘EMIR REFIT’) was a significant milestone and introduced various changes to the EMIR reporting landscape, coming into effect on 17 June 2019. In line with the European Commission’s REFIT programme, it focused strongly on clearly defining and, where possible streamlining, the reporting obligation to minimise costs.
One area of significant change outlined in the Regulation related to the responsibility lines for reporting contracts between various types of entities, including:
- Financial Counterparties (FC) and Non-Financial Counterparties below the relevant clearing threshold (NFC-),
- NFC- and third country entities, and
- the management company of an undertaking for collective investment in transferable securities (UCITS) and the manager of an AIF (AIFM).
In addition, the Regulation identified intra-group transactions as exempt as long as the pre-defined conditions are met for both counterparties and their parent undertaking. Though notably the exemption must be lodged with and agreed to by their Member State national competent authority (NCA) in order to be considered valid.
Another item of change noted in Regulation (EU) No 2019/834 was the removal of the backloading requirement for transactions which were not outstanding when the EMIR reporting obligation came into effect in August 2012.
EMIR REFIT: Upcoming
Furthermore, Regulation (EU) No 2019/834 also introduced mandates for ESMA to revise the implementing and regulatory technical standards related to the EMIR reporting framework.
Building on the responses received to their Consultation Paper around this, ESMA published their Final Report “Technical standards on reporting, data quality, data access and registration of Trade Repositories under EMIR REFIT” on 17 December 2020 (Final Report).
In addition to draft versions both for the revised regulatory technical standards (RTS) and implementing technical standards (ITS), the Final Report includes a wealth of additional guidance, all designed to improve the quality of data reported under EMIR, whilst aligning with global standards and other regimes to further reduce the burden of reporting. In the report, ESMA also commits to providing supplementary materials as well as further clarifications and examples prior to the changes becoming effective, to ease the implementation and transition period.
With the publication of the report in December 2020, the draft RTS and ITS were submitted to the European Commission for endorsement. Once endorsed, ESMA have proposed an 18 month implementation window.
From a report submitting perspective, the below summarises the key points outlined in the Final Report.
- Client submission format & content
- Reports submitted to an EMIR Trade Repository (TR) must comply with the ISO 20022 XML message standard
- Reports submitted to an EMIR TR must be in line with the revised RTS and ITS, and meet the validation rules, which ESMA will specify, to be accepted
- The revised RTS and ITS include 203 fields in total, though not all will be required for each report submitted
- The Final Report includes guidance on how to populate various fields and groups of fields, with additional clarifications and examples to follow from ESMA in due course
- Client response format & content
- Responses from the EMIR TR to submissions must comply with the ISO 20022 XML message standard
- Responses for submissions which have been rejected by the EMIR TR will include a relevant rejection category and error code, which will be specified by ESMA in due course
- Reports from the TR
- EMIR TRs must provide clients with 7 end of day reports using the ISO 20022 XML message format, as a minimum, covering:
- Daily accepted submissions
- Outstanding trades and positions
- Daily rejected submissions
- Reconciliation status for outstanding and recently matured or terminated derivatives
- Outstanding derivatives with no valuation reported in the last 14 days
- Outstanding derivatives with no margin information reported in the last 14 days
- Outstanding derivatives where the notional amount is outside a pre-determined, asset class specific threshold
- The fields, and their associated tolerances, to be reconciled will be updated in line with the revised RTS and ITS in two phases
- phase 1 covers 85 fields and begins once the draft regulation comes into force
- phase 2 adds a further 66 fields and begins 2 years after phase 1
- TRs are required to exchange derivative details with other TRs for reconciliation purposes using the ISO 20022 XML message standard
- A new reconciliation status specific to valuation fields is added, alongside the existing reconciliation status for non-valuation fields
- TRs are required to provide report submitting entities with a reconciliation report detailing the status of all derivatives reconciled that day within one hour of the process completing.
- Derivative contracts outstanding at the time when the draft regulation comes into effect must be updated to the latest standards within 180 days, either through the submission of lifecycle events as they occur or an additional process specifically to update using Action Type ‘Modify’ and Event Type ‘Update’.
- Building on ESMA‘s Q&A on EMIR Implementation TR Q&A40, ESMA details specific requirements and timelines for notifications in the case of corporate events such as mergers and acquisitions
- ESMA stresses the need to follow the Portability Guidelines in all scenarios when moving reporting from one TR to another
EMIR REFIT: The UK
While the above summary is based on ESMA’s Final Report, it is expected that the FCA will implement similar requirements, albeit with updates where necessary to cover the different jurisdiction. We await further guidance on this from the FCA.