EMIR Re-fit: Lessons Learned

Looking back on the European OTC derivative transaction reporting re-write as the mirror Australian ASIC deadline in October fast approaches.

Within the world of derivative transaction reporting, for the past year at least, most of the regulatory focus has been on Europe’s EMIR re-fit (European Market Infrastructure Regulation) and ensuring compliance by the April 2024 deadline. While this laser focus was indeed necessary, it has somewhat delayed focus toward the many other countries making a similar move this year. Global investment firms and counterparties which serve local APAC firms are now finding themselves in a hurry to shift attention to the ASIC re-write in Australia and MAS in Singapore, both going live in October 2024. 
As we move into the final quarter in the run up to the ASIC and MAS deadlines, we feel it’s important to look back on the many, hard-earned, lessons which emerged from the industry’s efforts for EMIR and its re-write. A huge amount of resource and brainpower have already spent here so these learnings should be re-used for any other regime roll-out’s due to occur this year.

We categorise the key learnings into 6 buckets:

1. Data Management
2. Data Quality
3. Operating Model
4. Reporting Flexibility
5. Governance Compliance
6. Industry Working Group

Data Management

Firstly, let’s take a look at data management as it became clear to all at an early stage that technological upgrades and automation were going to be critical to success, specifically -

Integration with Trade Repositories

Seamless integration with trade repositories ensures timely and accurate submission of data, aligning with EMIR re-fit requirements. Partnerships with trade repositories like DTCC, Una Vista and Regis to integrate the data for oversight will add great value to the oversight of your data for the reconciliation and data accuracy review.

Advanced Reporting Systems

Investing in advanced reporting systems that can handle complex regulatory requirements efficiently is essential. Automation of data collection, processing, and reporting reduces the risk of human error and increases efficiency. The adoption of the ISO 20022 messaging standard enhances the consistency and quality of reported data, enabling better interoperability between different systems and jurisdictions.

Testing new datasets

With the introduction of a new schema will come difficulties to ingest, standardise and interpret the data. It is important to ensure the counterparties are testing the data pre-re-fit in a UAT environment and providing data to confirm this testing is complete. Where possible, review the data against a rule set in line with the re-fit rules (ESMA validations for re-fit) and compare to the current model. This is likely the area the industry is slowest to make moves on, however is likely one of the most value providing efforts anyone can make ahead of a go-live date. 

Data Quality

Enhanced data quality and accuracy are a key driver for the regulators creating these changes, so naturally will be a heavy focus of any re-write project. 

Reconciliation and Validation: 

More strict requirements for data reconciliation between counterparties and trade repositories have highlighted the importance of accurate and high-quality data. Firms must implement robust validation processes to ensure data consistency.

Standardisation: 

The introduction of standardised data fields and reporting formats has improved data comparability and quality. Adopting these standards early can prevent discrepancies and reduce reconciliation issues.

Error Handling for Data Quality and Accuracy review: 

Develop robust error handling and correction processes to address issues identified by trade repositories. This can be communicated to the counterparties through use of the UTI (Unique Transaction Identifier) from the trade repository reports and highlighting issues with the reported data.

Operating Model

Where already in place, operating models will need review and where not previously in place it will take careful consideration to establish a robust go-forward model. 

Agility and Flexibility

Firms must remain agile to adapt quickly to regulatory changes. This includes updating systems and processes in response to new requirements.

Continuous Learning and Training

Regular training for staff on regulatory updates and data management best practices ensures that the organisation remains compliant and can efficiently handle data reporting requirements.

Reporting Flexibility

A one-size-fits-all approach to reporting, unfortunately, didn’t suffice. 

Counterparty level

The outputs produced from the reconciliation and data accuracy reporting should be produced at a granular level so that the remediation process is seamless. The inclusion of the UTI or reference ID from the trade repository reporting will speed up the review process.

MIS

High level statistics for the Fund Board to review at Fund, Counterparty or Umbrella level where the percentage of match, breaks or accuracy issues are available to communicate the impact of the changes for re-fit. 

Governance Compliance

When all the heavy lifting has been done and complete, accurate data sets are moving to where they should be, the project focus then switches to considering the longer-term BAU state and how senior stakeholders can ensure data governance and oversight, without being too deep in the day to day. 

Strong Data Governance Framework: 

Establishing a comprehensive data governance framework is crucial. This includes clear data ownership, accountability, and procedures for data quality management.

Regular Audits and Reviews: 

Regular internal audits and reviews of data management practices help ensure compliance and identify areas for improvement

Industry Working Group

Last, but certainly not least, one of our top findings from the EMIR re-fit was the importance of industry participants joining an industry forum which allows for an open discussion on the change alongside peers and the regulator in question. 

Engagement with Regulators and Industry Peers: 

Regular engagement with regulators and participation in industry forums help firms stay informed about best practices and upcoming regulatory changes.

From our experience, the Central Bank of Ireland and EMIR team have participated in the working groups to assist with questions from the industry on oversight and changes that have been made since re-fit on reporting requirements. This has been critical to ensure a firm is not operating in silo away from the rest of the industry. 

Conclusion

The EMIR re-fit emphasises the importance of accurate and high-quality data, strong governance, technological advancements, agility in adapting to regulatory changes, robust security measures, effective collaboration, and cost management. By internalising these lessons, firms can enhance their data management practices, ensuring compliance and operational efficiency in the evolving regulatory landscape.