Randy Priem: EMIR Refit – so how did it go?

COLUMN – RANDY PRIEM | Overall, the implementation of EMIR Refit passed smoothly, with minor issues being followed up by trade repositories and other stakeholders. Still, regulators will need to continue following-up whether data quality is acceptable. PostTrade 360° proudly introduces senior regulatory expert Randy Priem among our columnists. 

The European Market Infrastructure Regulation (EMIR) Refit introduced significant changes to the original EMIR framework, with a particular focus on enhancing the reporting requirements outlined in Article 9 of EMIR specified in Commission Delegated Regulation (EU) 2022/1855. After the great financial crisis of 2008-2009, EMIR aimed to enhance the stability and transparency of over-the-counter derivatives markets. One of the key components of EMIR was then also an obligation for counterparties to report all derivative contracts to trade repositories in order to ensure that regulators have comprehensive access to data, enabling them to monitor and mitigate systemic risks.

One of the critical aspects of EMIR Refit was the introduction of new fields and identifiers (i.e. from 129 to 203), designed to provide a more comprehensive view of derivative transactions. The new fields include detailed information on the counterparties, collateral, valuation, and other transaction-specific details but also the introduction of a unique product identifier (UPI) for derivatives without an International Securities Identification (ISIN – ISO 6166) code, which is typically already present for transactions admitted to trading or traded on a trading venue or a systematic internaliser. 

The transition, which took place on 29 April 2024, brought several changes and challenges, which provided critical lessons for the industry. That is, the increased number of data fields necessitated significant upgrades to existing reporting systems of reporting entities, mostly financial counterparties as they do not only have to report for their transactions but also for the non-financial counterparties with whom they act as counterparties. Firms also had to invest in IT infrastructure and software updates to accommodate the new XML-based reporting format. The adoption of UPIs also required firms to upgrade their systems to capture and report these identifiers accurately with the main goal of improving the accuracy, transparency, and reliability of derivative transaction reporting. The introduction of new data fields such as collateralisation details, margin data, and specific contract terms meant that firms also had to enhance their data collection processes. Trade repositories then needed to adapt to the new reporting requirements under EMIR Refit. The additional data fields and validation rules required trade repositories to upgrade their systems and processes to ensure compliance. 

The initial feedback from industry participants indicated a mixed experience with the transition. While some firms managed a relatively smooth transition due to early preparation and robust systems, others faced more challenges related to data quality and system readiness. Nevertheless, the transition went on overall – with a few exceptions perhaps where e.g. the data was sent somewhat too late – smoothly, and rejection rates by the trade repositories seem to be declining with a more stabilised data transmission and data volumes back to pre-refit levels. Overall, while the implementation of EMIR Refit thus presented several challenges, the proactive approach taken by many firms, coupled with strong industry and regulatory collaboration, seemed to have helped in achieving a relatively smooth transition. 

Of course, it is too early yet to tell whether the transition was a success and what the lessons are both for reporting entities and trade repositories so a follow-up by the industry and regulators in the coming weeks is important. Regulators will also need to continue focusing on data quality. The data quality has improved over the last few years, but EMIR refit now necessitates keeping a close look to detect e.g. teething problems. 

The advice that can be given to reporting entities is to develop their own monitoring tools and data analytics with key performance indicators that allow proactively analyzing the quality of data. Reporting is namely a regulatory obligation and consistently reporting low-quality data can be considered as an infringement of EMIR. The ESMA guidelines also require an entity responsible for reporting to promptly notify its competent authority in case of any misreporting caused by flaws in the reporting system that would affect a significant number of reports, any reporting obstacle preventing the report submitting entity from sending reports to a trade repository within the deadline, and a significant issue resulting in reporting errors that would not cause rejection by a trade repository following the regulatory technical standards on data quality. In the case of high-quality data being reported, the long-term benefits of improved market transparency, risk management, and regulatory oversight are namely likely to be substantial.

As a senior official of Belgium’s supervisory market authority and member of CPMI-IOSCO’s steering committee, as well as a scholar, Randy Priem continuously monitors the global financial-stability and investor-protection landscape from the very top of the hill. His PostTrade 360° column lets him share informal observations and reflections underway, on subtopics big or small.
Any views expressed are Randy’s personal, not representing positions of his institutions.