EMIR 3-Initial Margin Requirements
EMIR as a set of rules contains many provisions, including but not limited to conduct rules for Central Clearing Counterparties, provisions mandating the clearing of certain OTC derivatives, treatment of derivatives traded on EEA and third country venues, risk mitigation techniques for OTC derivatives uncleared by a CCP, and a reporting obligation. In December 2024 regulation EU 2024/2987 came into effect. The aforesaid regulation amends EMIR in significant ways and has been colloquially dubbed “EMIR 3”. The new rules touch mostly upon the issues of clearing and risk mitigation techniques. It is already widely known that EMIR 3 introduced a requirement for EEA based counterparties to reduce their exposure to non-EEA Clearing Houses by mandating FCs and NFCs+ to open, maintain and actively use accounts with EEA Clearing Houses. One of the least discussed requirements of EMIR 3 however is the requirement placed on NFC+ and FCs with respect to initial margin models for OTC derivatives uncleared by CCPs. Margin RTS vs EMIR 3 : What’s the difference With the so called Margin RTS the EU set requirements regarding the eligibility, management and segregation, the terms for the exchange of margin (mostly initial margin) with respect to OTC derivatives uncleared by a CCP, as well as thresholds/conditions below/under which the Margin RTS can be disapplied. EMIR 3 does not undo the requirements under the Margin RTS, which remain unaffected. EMIR 3 Initial Margin Model – Approval by NCAs Under EMIR 3 FCs as well as NFCs + before implementing a new model for the exchange of initial margin between themselves and their counterparties they will need to apply for authorisation by their home competent authority. If FCs and/or NFCs+ intend to amend a previously authorised model, that triggers a new request for approval by their home NCA. As per EMIR 3 NCAs will have 6 months to approve/reject a new initial margin model, or 3 months to approve/reject a modification to an already approved model. Pro-forma models Many counterparties implement pro-forma initial margin models such as the ISDA Standard Initial Margin Model (ISDA-SIMM), said counterparties will still be required to submit a request for approval from their NCAs, however the process is expected to be expedited by the European Banking Authority which will set-up, maintain and update a centralised database which will validate the said pro-forma models submitted by interested parties. Counterparties that seek approval of their initial margin models based on a pro-forma model will need to include in the application for approval the appropriate references to the EBA’s database. Enhanced supervision of large Investment Firms/Credit institutions EMIR 3 also envisages enhanced supervisory procedures for Investment Firms/Credit Institutions which have a monthly average outstanding notional amount of non-centrally cleared OTC derivatives of at least EUR 750 billion. The supervisory procedures will be co-developed by the European Supervisory Authorities (EBA, ESMA, EIOPA). Exemptions: Single Equity, Index OTC options EMIR 3 ushered a welcomed exception; the new regime allows parties trading Single Equity or Equity Index options to exempt themselves from the requirement of exchanging collateral. Complyport Tech notes that this applies to OTC options uncleared by a CCP. Furthermore, our own subjective view is that considering how plain vanilla option contracts operate and taking into account that collateral is exchanged to hedge against counterparty default risk, we welcome the approach. Opinion by the EBA The EBA has identified early on, that the new ruleset creates a number of issues given that the pro-forma database has yet to be completed, the ESAs have yet to determine the appropriate supervisory mechanisms for NCA’s to scrutinise large investment firms/credit institutions, as well the status of initial margin models already in place prior to EMIR coming into effect. As such the EBA has published an opinion with which it clarifies a few important issues Firms that implemented initial margin models before the entry into force of EMIR 3 are not required to seek approval from their NCA’s to continue using said models. Nevertheless, if firms modify the said models after EMIR 3 came into force they should seek the appropriate approval from their regulators. The format and content of the application that firms need to submit to their NCA’s for approving new IM models or modifying previously approved models. An instruction to the NCAs to deprioritise their supervisory or enforcement actions with respect to large investment firms/credit institutions till after the ESAs finalise their work on the supervisory processes (and they come into effect). An instruction to the NCAs to deprioritise their supervisory or enforcement actions with respect to the applications they receive pursuant to EMIR till the ESAs finalise their guidance or recommendations. Sectoral Impact – EEA based CFD providers Considering that many EEA CFD providers trade with retail clients by and large the initial margin model CFD providers follow is set out in the restrictive measures set by the NCA’s across the EEA(the list is not exhaustive): 3.33% initial margin of the notional value where the underlying is a currency pair comprised of any 2 of the following currencies USD, EUR, JPY, GBP, CAD or CHF. 5% initial margin of the notional value where the underlying is any one of a selected list of Equity Indices (e.g. S&P500, CAC40, DJIA, etc.). 5% initial margin of the notional where the underlying is gold. 5% initial margin of the notional where the underlying is a currency pair comprised of 1 of the currencies referred to in the first bullet point. 10% initial margin of the notional where the underlying is a Commodity Index or an Equity Index not referred to in the second bullet point. 50% initial margin of the notional where the underlying is a crypto asset. 20% initial margin of the notional where the underlying is a single stock. The above restrictive measures on face value are an initial margin model within the meaning of EMIR 3. Considering that the said initial margin model existed before the application of EMIR 3, there is no need for CFD providers to seek approval from their NCAs, regarding the specific case
Virtual Power Purchase Agreements – EMIR (EU/UK)
As the global focus on reducing carbon emissions and the transition towards renewable energy sources, Virtual Power Purchase Agreements (VPPAs) or Financial Power Purchase Agreements (FPPAs) have emerged as a mechanism for companies aiming to meet sustainability targets and mitigate energy price volatility. This blog explores these instruments, their regulatory reporting obligations, and how Complyport Tech can assist clients in navigating this complex landscape What Are Virtual Power Purchase Agreements A Virtual Power Purchase Agreement is a formal multiyear agreement between an energy producer and a consumer (corporate), for the sale of electricity at a prefixed price. Unlike physical power purchase agreements, there is no physical delivery of electricity, but the contract is financially settled. I.e., the energy producer (seller) supplies its electricity output to the electricity grid and the consumer’s (buyer) supply of electricity is independent from the VPPA. The financial settlement process may differ from VPPA to VPPA, but the most common form is as follows. The Parties to the contract agree that each billing cycle, if the fixed price is above the prevailing market price for electricity (as published by a third party such as power exchanges like Nord Pool) the seller (energy producer) will pay to the buyer (consumer) the difference between fixed contract price and prevailing market price (adjusted for the output as defined in the contract). If the prevailing market price is above the contract fixed price, the buyer (consumer) will pay the difference to the seller (energy producer). Moreover, in several VPPAs the energy producer will deliver to the consumer a so-called Energy Attribute Certificate (EAC). The said EAC is evidence that the energy the consumer bought comes from renewable sources. EACs are tradeable and transferable in many jurisdictions, as countries from around the world are scrambling to offer incentives towards transitioning to clean energy sources. As such, the consumer may also stand to gain from trading EACs obtained under the VPPA. EACs come in many flavours such as the EU’s Guarantee of Origin (GoOs) harmonising the EAC system of EU member states, the US’s Renewable Energy Certificates (RECs) and the UK’s Renewable Obligation Certificates (ROCs). Finally, it is worth noting that the financial settlement process of the VPPA allows for such contracts to be cross-border, e.g. the producer may be established in a different country than the consumer. Why are Virtual Power Purchase Agreements subject to EMIR reporting As we have analysed in the previous paragraph VPPAs are complex, usually long-term commodity (electricity) contracts which are financially settled. Therefore, such contracts fall under the perimeter of a derivative financial instrument. Moreover, given the bilateral nature of such contracts these are OTC unlisted and, in most cases, uncleared (by Central Clearing Counterparty) derivatives. Additionally, depending on the terms of the agreement, VPPAs may have the characteristics of a forward , a contract for difference, a swap, or even a swaption. Considering all of the above, the said contracts fall under the scope of the EU’s and/or the UK’s EMIR rules that capture all derivative financial products. As such, both the energy producer and the consumer, upon entering a VPPA become subject to the provisions of EMIR which include, inter-alia, a reporting obligation. How can Complyport Tech assist At Complyport Tech we understand that in many cases producers and consumers cannot set up by themselves the necessary processes for EMIR reporting, as such, we offer various options for parties to a VPPA including a service whereby, we take upon ourselves to: Analysing the VPPA agreement, either bespoke contracts or standardised master agreements (e.g. ISDA, EFET) in order to identify the commercial aspects. Mapping the commercial aspects of the VPPA to the values required under EMIR. Enriching the EMIR report with other requisite data such as interconnection points, delivery zones, electricity load types. Creating and submitting reports on behalf of such clients to an EU or a UK Trade Repository. Providing the end client with the relevant files (e.g. TR responses, submitted files) for their records. Contact our team of experts for more information or any assistance you may require.
UPI: A new data element for OTC derivatives reporting
One of the many changes that EU’s EMIR REFIT usher in is the UPI, or Unique Product Identifier. The UPI will be deployed across many jurisdictions including, but not limited to, Australia, Singapore, Europe (the EU and the UK) as well as the USA. The road towards a globally endorsed UPI The UPI was introduced under EMIR version 1, but at the time Securities Commissions/Central Banks and other interested parties had yet to agree on a global standard. In fact, in the current EMIR RTS under Product classification, pundits will notice that the UPI exists as an option but as per the specs “For products for which ISIN or AII are not available, endorsed Unique Product Identifier (UPI) shall be specified. Until UPI is endorsed those products shall be classified with CFI code.” At an international level, the International Organisation of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures (CPMI) set to work on the UPI and in 2017, they published the Technical Guidance (to authorities) on the Harmonisation of the Unique Product Identifier. The Financial Stability Board (FSB) following the issuance of the aforesaid guidance assigned the Derivatives Services Bureau (DSB), a subsidiary of the Association of National Numbering Agencies (ANNA), as the sole issuer of the UPI codes, while the Regulatory Oversight Committee (ROC) was appointed as the International Governance Body for the UPI Standard. See below a brief video prepared by ANNA DSB on the UPI When do you need a UPI in the EU? With the advent of EMIR REFIT and given that the preparatory work was finalised for the adoption of a global UPI standard, UPIs will be required for instruments which do not have an ISIN and are not listed on an EU Trading Venue (meaning a Regulated Market, Multilateral Trading Facility, or Organised Trading Facility) or, not executed with a Systematic Internaliser (SI) or, not listed on third country organised trading platforms. The new rules are very specific that instruments should be identified either with an ISIN or with a UPI (there will not be a situation where both identifiers will be required). However, as mentioned in ESMA’s validation rules, ISINs are required where the Venue of Execution data field is populated with a MIC code of EU Trading Venues, or SIs, or with the value XOFF. XOFF signals that the instrument in question is listed on a Trading Venue but the transaction did not take place on said venue, or with an SI or, on organised trading platforms outside the EU. We should note here, that all instruments listed on EU (and UK) trading venues are required to be identified with an ISIN since 2018, with the advent of MiFID II/ MiFIR package and more specifically, mandated under Regulation EU 2017/585 supplementing MiFIR. Moreover, for instruments listed on third country venues exclusively (which should be identified in the EMIR REFIT report with their MIC code, where the said execution took place on the third country venue) and where those third country venues do not identify their instruments with an ISIN, both the ISIN and UPI field can be left blank (UPI in this case is marked as optional). Invariably, from the above it is evident that the following classes of non-listed derivatives are likely to be captured by the UPI requirement, the below list is not exhaustive: Forward contracts (e.g. NDFs on various assets traded between FCs and/or NFCs, Virtual Power Purchase Agreements between Wholesale Energy Producers – Consumers); Options (e.g. Stock option programmes some firms offer as part of employee remuneration packages, digital or binary options); Contracts for Difference; Swaps (e.g. Total Return Swaps, Fixed-For Floating Swaps, Currency Swaps); Etc. In our next blog post on the UPI, we will deep dive into the technical documentations of the UPI code, in order to assist the market participants understand how to generate or retrieve the UPI as necessary. How is MAP FinTech going to assist? MAP Fintech offers the UPI Link Service that helps retrieving companies match their products’ attributes precisely to those already issued UPIs, ensuring that reporting companies use the correct UPI Code. MAP FinTech’s UPI Link Service boasts essential functionalities, including: Automated identification of UPIs using reference data provided by the reporting entity and the latest issued UPIs supplied by the ANNA-DSB. UPI enrichment of reported files prior to submission to the TR. Error identification where UPIs cannot be mapped against the ANNA-DSB’s issued UPI records. Inline editing capability for on-the-fly amendments on the UPI. Advanced search function from within Polaris portal which can pinpoint the exact UPI based on enhanced search criteria.
Unique Product Identifier: Crypto-asset identifiers
Unique Product Identifier: Crypto-asset identifiers As we had discussed in previous blog entries regarding the UPI and the technical data on how to generate the UPI, we now turn our focus on a specific aspect of the UPI. UPI for derivatives on crypto-assets. As mentioned in our January blog entry, ANNA-DSB has adopted various standards widely accepted by industry stakeholders. E.g. ANNA DSB adopted the following standards: for currencies the three letter ISO 4217 code; for Securities their ISIN, or SEDOL, or CUSIP, or FIGI; for Equity Indices, their ISIN or official name as published by the index administrator; etc. Crypto assets represent a particular problem, due to their nature they are not standardised nor are they issued with any unique identifier. As such, crypto-asset jargon widely used to identify such assets is not standardised nor unique, e.g. bitcoin is sometimes referred to BTC or XBT, while Ethereum Ether, is sometimes referred to as Ether, ETH or with Greek letter Xi Ξ. In order to avoid duplication pitfalls, for crypto-asset identifiers, ANNA-DSB has decided to adopt the identifiers issued by the Digital Token Identifier Foundation – DTIF. The code is a unique 9 letter code that characterizes each crypto asset maintained and issued by the aforesaid foundation. See below a non-exhaustive list of crypto-assets with their corresponding DTIF code. Token name Short name DTIF Code Additional Comments Bitcoin BTC, XBT 4H95J0R2X Bitcoin Cash BCH, BCC, XBC J9K583ZGG Ethereum Ether ETH, Ξ X9J9K872S Litecoin LTC WTX0G7K46 Ripple XRP XRP L6GTZC9G4 Tether USD USDt 29DD3R2SH NEAR Tether USD USDT 75T0GP5WJ USDT/BTC, XBT Tether USD USDT 2QWSBDMNC USDT/ETH, Ξ USDT USDT 6QBMW6DQZ USDT/SOL Solana SOL SOL 20J63Z4N3 Binance Beacon Chain BNB 85MP572L7 Binance Coin Binance USD BUSD DDWNJQZZH BUSD/BNB Shiba Inu SHIB VB2Q3G56B SHIB/ETH, Ξ Dogecoin DOGE 820B7G1NL TRON TRX TRX 993D8X1FB As such entities that want to generate or retrieve UPIs on crypto-assets derivatives, they should, be aware of the appropriate identifier of the underlying reference value (the crypto asset) in this case the crypto-asset DTIF code. For a comprehensive list of the DTIF codes that ANNA DSB has included in its libraries refer to the link here. See also a short list of issued UPIs on the basis of the above. Contract Type Underlying Crypto asset name DTIF code/Underlier ID /Commodity Reference Price UPI Forward Bitcoin 4H95J0R2X QZ8VLPDHMFT5 Contract for Difference Bitcoin 4H95J0R2X QZ52MJGFVNBM Contract for Difference Solana SOL 20J63Z4N3 QZC6G1M4D7F1 Forward Ethereum Ether X9J9K872S QZ23M8PD81D9 Forward Dogecoin 820B7G1NL QZT4X5KM56G5 *Disclaimer, the DTIF codes and the Unique Product Identifiers in this blog are presented for information purposes only, for an up-to-date list of DTIF codes and/or UPIs consult Digital Token Identifier Foundation and/or ANNA – DSB resources. How is Compltyport Tech going to assist? MAP Fintech offers the UPI Link Service that helps retrieving companies match their products’ attributes precisely to those already issued UPIs, ensuring that reporting companies use the correct UPI Code. MAP FinTech’s UPI Link Service boasts essential functionalities, including: Automated identification of UPIs using reference data provided by the reporting entity and the latest issued UPIs supplied by the ANNA-DSB. UPI enrichment of reported files prior to submission to the TR. Error identification where UPIs cannot be mapped against the ANNA-DSB’s issued UPI records. Inline editing capability for on-the-fly amendments on the UPI. Advanced search function from within Polaris portal which can pinpoint the exact UPI based on enhanced search criteria.
Complyport Tech Webinar – In anticipation of the EU EMIR REFIT launch
Complyport Tech hosted a webinar with its EMIR-obliged clientele a few days before the REFIT go-live date to better prepare reporting entities. MAP FinTech staff reiterated to reporting entities that, when reporting on a delegation basis on behalf of other financial institutions (such as investment firms, credit institutions, funds etc.) defined under EMIR as Financial Counterparties (FCs), they need to furnish their Trade Repositories (TRs) with the LEI and a contact email for the said FCs. Trade Repositories need to obtain explicit authorisation by delegating parties As per the requirements of EMIR REFIT, TRs will need to directly contact delegating parties asking them to confirm in writing that they have authorised the reporting entities to submit EMIR reports on their behalf. Failure by the delegating parties to provide explicit confirmation will result in the rejection of reports submitted by report-submitting entities on their behalf. TRs have begun reaching out to delegating parties from early April 2024 and urged reporting entities to inform all those concerned to take prompt actions. Finally, for non-financial counterparties for whom the reporting entities are liable to submit EMIR reports on their behalf, the reporting entities can self-certify that they have received the authorisation to report without the need for the TR to directly obtain the explicit confirmation. UPI population status update On the issue of generating UPIs, MAP FinTech informed reporting entities that as per ANNA-DSB, the authority issuing UPIs, as of early March 2024 about 1,148,000 UPI records were generated. However, from an analysis conducted by ANNA-DSB, only 300,000 were generated by Market Participants; the rest were populated by ANNA-DSB themselves from the record they have of OTC unlisted derivatives that were issued with an ISIN. It was emphasised to webinar attendees that a UPI must be available on the reporting day. Therefore, attendees must examine their OTC derivatives’ offerings and try to identify the suitable UTI from ANNA-DSB’s database. In cases where the necessary UPI does not exist, reporting entities need to generate it. You can refer to MAP FinTech’s blog on the technical aspects regarding the generation of a UPI. Testing of the new regime MAP FinTech readiness and troubleshooting MAP FinTech informed the audience that it has carried out extensive testing of the new reporting regime and has identified discrepancies and inconsistencies in the XML schema and ESMA’s validation rules that caused reporting breaks. These were addressed to the TRs and ESMA who have provided intermediate guidance on how to overcome these issues. Furthermore, MAP FinTech informed clients that, as of the beginning of April the overwhelming majority of its clientele had already provided the necessary additional data for the REFIT reporting regime and those were successfully incorporated into the new reports and were tested in a UAT TR environment. New tools for EMIR-REFIT In closing, participants were reminded that MAP FinTech offers new tools to assist its clientele, namely the UPI Link search tool that identifies issued UPIs from ANNA-DSB’s database, and XMLCon.Vert service that allows clients to convert .csv files to the requisite REFIT XML format. MAP FinTech: your trusted RegTech Provider Looking ahead, MAP FinTech pledges continuous monitoring and support post-launch, anticipating an adjustment period and committing to random reconciliation checks to uphold data integrity. Clients are urged to vigilantly monitor submissions and report any anomalies during the initial weeks. As the countdown to this pivotal milestone accelerates, the synergy between MAP FinTech, clients, and TRs assumes paramount importance. With unwavering dedication to facilitating a seamless transition, MAP FinTech expresses gratitude for the collective effort of all stakeholders, confident that this complex undertaking will ultimately yield more efficient reporting processes under the new EMIR REFIT standards. At MAP FinTech, we offer more than just cutting-edge technology; We provide expert knowledge and unwavering support to guarantee a seamless transition to the new reporting requirements. Contact our team of experts today and experience a smooth transition.
How will the new EMIR REFIT reporting requirements impact the EU and the UK markets?
In a recent article published by FinTech Global, George Markides, Senior Manager of the Compliance Support Department at Complyport Tech, highlights key aspects of the new EMIR REFIT reporting regime and how it will impact the EU and UK markets. The rules come into effect on April 29, 2024, in Europe and September 30, 2024, in the UK. According to Markides, the regime introduces several novelties that will impact the way reporting counterparties operate and exchange information with each other, inviting increased scrutiny from regulators. Notably, Markides writes that one of the most significant changes is the additional data points and values reported that will be subject to reconciliation for dual-sided reports submitted by counterparties in the EEA or UK. The reconciliation takes place at the trade repository (TR) level with results shared with reporting entities and regulators. Crucially, valuations of derivative contracts under EMIR will also be subject to reconciliation. Markides emphasises the establishment of the Unique Product Identifier (UPI), a concept introduced in EMIR V1 but now required from day one of the new reporting regime. UPI serves as an identifier for non-listed OTC derivatives and is issued by ANNA Derivatives Services Bureau (ANNA-DSB), though new issuances will incur fees. Additionally, EMIR REFIT introduces more detailed outgoing messages from TRs, sharing data such as number of submissions, number of rejections, outstanding positions, and trades with outdated or no valuations or collateral information, reconciliation status, or abnormal values reported. These reports aid reporting entities in correcting their submissions and provide regulators with a more immediate and comprehensive view of compliance with the reporting regime. In conclusion, Markides stresses that these changes necessitate reporting counterparties to enhance oversight and monitoring to minimise potential lapses in compliance. Read the full article here. MAP FinTech can fully assist any firm under EMIR Reporting to seamlessly adapt to the evolving reporting requirements brought on by EMIR REFIT. Contact our team of experts and learn how you can benefit from our innovative and comprehensive regulatory reporting solutions.
EMIR reporting 101 – Collateral Updates
Did you know that Investment Firms, Banks, and Funds must report collateral received from clients including retail clients, or posted to other counterparties? Under EMIR’s risk mitigation techniques, Counterparties that do not clear their derivatives trades with a Clearing House, are required to exchange collateral to manage default/counterparty risk. This exchange of collateral must be reflected in the EMIR reporting that Counterparties submit to the TRs. Collateral is split under EMIR in three broad categories: Initial margin (received from clients/other counterparties or posted to other counterparties) Variation margin (received from clients/other counterparties or posted to other counterparties) Excess collateral Whereby Initial margin is the collateral collected to cover current and potential future exposure in the interval between the last collection of margin and the liquidation of positions or hedging of market risk following a default of the other counterparty Variation margin is the collateral collected to reflect the results of the daily valuations of outstanding contracts (either marked to market or marked to model) Excess collateral is additional collateral posted or received separately and independently from initial and variation margins At Complyport Τech we can help create and submit on-time accurate collateral reports reflecting your trading data, with our dedicated support and compliance teams we can help counterparties navigate successfully and with ease the requirements under EMIR. Say goodbye to the hassle and hello to peace of mind with Complyport Tech. Contact us today to learn more!
UK EMIR Derivatives Reporting Framework: FCA update
On 24th February 2023, the FCA issued an update regarding changes to the UK EMIR derivatives reporting framework. The joint FCA/Bank of England Policy Statement (PS 23/2) announced that the new rules will come into force from 30 September 2024, as well as publishing draft versions of EMIR Validation Rules and Incoming/Outgoing XML schema. Firms can submit feedback for technical specification documents until the 24th of March 2024, with the final versions expected to be released shortly after this date. Although the UK rewrite remains largely in line with ESMA, there are some differences to be aware of: Dual Reporting Obligations Dates: With the ESMA deadline date on 29th April 2024, separate to the FCA 30 September 2024 date, firms with dual reporting obligations will need to provide two versions of EMIR reporting. Delegated Reporting: Regarding cross-jurisdiction reporting, EU entities currently providing delegated reporting to customers in the UK will continue to provide this in the existing format for clients but will need to use the updated Refit version internally. There is also additional pressure on UK firms providing delegation to EU firms, as they will need to be compliant by the earlier ESMA date of 29th April 2024 rather than the September deadline. Field and Validation Discrepancies: ‘Execution Agent’ is an additional field allowing third parties to be tagged by firms on their behalf. Various validations have been amended in the XML Schema Definitions (XSD) as well as a number of additional slight changes by the FCA. As the EU and UK frameworks continue to be updated in the future, it may become more difficult for firms to manage these discrepancies and requirements. Get in touch today to find out how we can assist your firm with the upcoming changes. How Complyport Tech may assist Complyport Tech is a leading award-winning global regulatory technology provider, highly regarded for its proprietary reporting technology and exceptional client-centric after-sales support. As one of the first providers in Europe to report under the European Market Infrastructure Regulation (EMIR), with billions of transactions reported successfully so far, we have built a reputation for excellence, coupled with the necessary regulatory expertise and technological innovation to assist firms in navigating their respective regulatory obligations. Contact our team of experts to find out how you can benefit from our innovative and comprehensive regulatory reporting solutions.
EMIR Refit RTS/ITS: reporting under the new standards
The EMIR Refit technical standards (RTS and ITS) were published in the Official Journal of the EU on October 7th 2022. With the compliance date now set on 29 April 2024, counterparties will need to report under the new standards, including upgrading outstanding derivatives to the new reporting standards. Some of the key differences that the EMIR Refit package brings are: New ISO 20022 XML Data Format. Unique Product Identifier (UPI) to be used where an ISIN is unavailable. Position-level reporting will be selected over transaction level where the conditionalities of the RTS/ITS are met. Additional details and values to be included in the report regarding, collateralisation, the reporting of corporate events and the direction of the transaction etc. New data points, for example, Post Trade Risk Reduction (PTRR), events (e.g., Compression), identifiers for crypto derivatives, additional points on asset characteristics, information on delta values etc. Delegated Reporting – Report Submitting Entity (RSE) must provide the Entity Responsible for Reporting (ERR) with transparency to the records reported on their behalf, and to any data quality issues encountered. Introduction of an Errors and Omissions notification to NCAs. A new provision by ESMA, that would require the counterparties to have in place written internal procedures to resolve any reconciliation break identified by the Trade Repositories (TRs). Increase in the number of reconcilable fields to be reconciled from the date when the new RTS/ITS package begins to apply with several more fields becoming reconcilable 2 years after the go-live date. ATTENTION Valuation becomes a reconcilable field. This means that where 2 EEA counterparties to a derivative contract respectively mark-to-market the valuation amount of said contract, if those values are outside tolerance level, this field will not reconcile, and the transaction will not be matched. Trade Repositories in case of a paired report between 2 EEA counterparties that have not been reconciled (matched, field by field) will stop attempting to reconcile the derivative 30 calendar days after the derivative ceases to be outstanding. Complyport Tech is a leading award-winning global regulatory technology provider, highly regarded for its proprietary reporting technology and exceptional client-centric after-sales support. As one of the first providers in Europe to report under the European Market Infrastructure Regulation (EMIR), with billions of transactions reported successfully so far, we have built a reputation for excellence, coupled with the necessary regulatory expertise and technological innovation to assist firms in navigating their respective regulatory obligations. Contact our team of experts to find out how you can benefit from our innovative and comprehensive regulatory reporting solutions.
EMIR/MiFIR Efficient Transaction Reporting Monitoring: What Does Your Organisation Need to Do?
Did you know your transaction reporting obligations don’t end when the necessary information has been submitted to the authorities? Besides providing the relevant data, you still need to confirm that the transaction reporting occurred in a timely and accurate manner as it’s required by the regulation. This, in turn, raises another crucial question: What exactly does “timely and accurate” mean, and how does this play a role in the efficient monitoring process? Timeliness of Reporting Generally speaking, Transaction Reporting must be done on a T+1 basis. T+1 means that the reporting must take place by the end of the next (local) business day from the execution of the transaction. To achieve this, you need to ensure that: Any reporting data is provided at a designated time that is agreed with the Competent Authority (CA) /Service Provider (SP). Processing of the data from the CA/SP is performed on time so that you may have enough time to react in case of negative feedback. Any resubmissions that need to be done must be submitted as early as possible. The above steps will ensure that you have reported and handled any rejections within T+1 and, ideally, within your working hours. Data Accuracy Accurate data is critical when it comes to reporting. The obligation is not only to carry out the reporting (i.e. submit the data to the authorities) but to do it in the right way. Therefore, it is important to automate this process as much as possible. The less human intervention applied to the data, the fewer potential mistakes that might occur. Monitoring of the Reporting When the reporting has been performed, it would be prudent to perform, on a daily basis, a reconciliation that follows some specific checks. Then, a more in-depth reconciliation should be carried out on a weekly or monthly basis. Daily reconciliation should be performed once the reporting has been finalised and, ideally, you should check on the following: The timeliness of the reporting. Has the reporting been done within T+1? The number of transactions reported. Does the number match the number of transactions in the trading system? Ideally, you should also check the number of different reporting messages (new, termination, modification, valuation, etc.) vs the relevant actions on the trading system (openings, closings, modifications, transactions that remained open overnight, etc.) If any rejections have been received, you need to take corrective measures within the day to meet your T+1 obligations. Weekly or monthly reconciliation will allow you to go deeper into the reporting process and identify possible errors. This process would include the following: Performing a health check of the process you have in place, mainly on the data extraction. This will ensure that the data is provided on time and that you do not have any unexpected or unattended internal issues. Checking that the source data provided to the service provider or used for reporting is accurate and in line with your trading setup. Some core fields you could check are price, execution time (in UTC), notional amount, counterparties, and side of the trade (buy or sell). Making sure that procedures are up to date when it comes to adding new financial instruments in your trading setup and, subsequently, to your reporting, and that you avoid underreporting or overreporting. This also relates to any new clients, especially NFCs within EEA and other broker clients that need to be identified within the reporting using their corresponding LEIs. Performing reconciliation in case you delegated your reporting to other counterparties to make sure that the transactions they report on your behalf are in line with what you have in your trading system, as well as the data reported is accurate. All of the above assist in the efficient monitoring of your transaction reporting. The sequence in which you perform these steps depends solely on your own preferences. However, you need to keep in mind that this process is critical in making sure that you have met all your reporting obligations. Monitoring is an ongoing process and, given the latest Data Quality Reviews performed by the regulators, ensuring that all goes well is of paramount importance. To achieve this, a structured monitoring process must be in place. Complyport Tech is one of the earliest innovators in the RegTech space, being highly regarded for its Regulatory Transaction Reporting Technology and exceptional client-centric after-sales support. If you are having difficulty implementing the above, you can contact our team of experts here.