With the EU EMIR Refit now in effect, the next regulation to come into focus is the UK EMIR Refit, which is scheduled to launch on September 30, 2024. Lavinia Ponniah, DTCC Director, RDS Product Management, DTCC, joined Alex McDonald, CEO, EVIA, for a webinar moderated by Michelle Zak, Managing Director, QOMPLY, to discuss lessons learned from the EU launch and best practices as the industry comes into the final stretch for the new regime.
Related: Watch the Replay of DTCC's RDS Forum
EU EMIR Refit Insight
Ponniah discussed the sometimes-intense situations that arose during the implementation period. ESMA had advised that market participants and trade repositories would have an 18-month implementation period but following the initial publication of technical specifications in December 2022, ESMA only released the final technical specifications in July 2023 which contained about a 50% change from the version published earlier. The new ISO XML 20022 standard, necessary for both incoming and outgoing messaging to the trade repository, took some time for firms to get acquainted with, but ultimately, the EU EMIR Refit implementation was a success.
Since go-live on April 29, 2024, more than 750 million transaction reports have been sent to DTCC Data Repository (Ireland) PLC (DDRIE). Of the 306 firms that have submitted reports, 16 have a 100% acknowledge rate, 35 have a 99% rate, and more than 50 have a rate over 90%.
The EU EMIR Refit required updates to all outstanding open positions before the end of the transition period which is 180 days after go-live. 4 million outstanding positions were updated to the updated technical standards on go-live itself, and to date, a total of 8 million open positions have been updated. That leaves approximately 7 million outstanding positions, and of those, 2.2 million will expire organically during the transition period, leaving 33% left to be updated.
The move to ISO 20022 XML has caused firms with lower volumes to leverage vendors, such as DTCC Report Hub, who can do CSV to XML conversion, enrichment of ISIN, UPI, UTI data instead of building the ISO 20022 XML messaging themselves. Larger investment banks who have already invested significantly over the last 10 years on regulatory reporting piping to the trade repository, operational and governance frameworks and have ISO XML expertise through MIFID reporting, have chosen to rebuild EMIR end to end and uplift to ISO 20022 XML standards.
Getting Ready for the UK Refit
The UK and EU EMIR Refits have a significant overlap, however, there are differences between the two regimes, including different fields and validation rules due to the differing mandates of the FCA/Bank of England/UK Treasury versus ESMA.
- Report Tracking Number (RTN): Under both EU and UK Refit, this is a unique number assigned to the execution and common among a group of reports related to the same execution. In a trade with many legs, questions arise on industry working groups on the RTN used and which RTN goes to EMIR. Ponniah explained from a trade repository perspective, the expectation is that the RTNs will be the same for both sides of the trade, however, some reconciliations stats show this field as the second highest unmatched field. Best practices are that both sides are the same, or the trade won’t reconcile.
- Foreign Exchange (FX) Swaps: FX Swaps have different treatments and requirements across different jurisdictions. An FX Swap under CFTC reporting is expected to be reported as 2 instruments and transactions, each with their own UTI. Under EU EMIR REFIT, the guidance for FX swaps is to report it as a single trade with 2 legs with 1 UTI. This creates some conflict when it comes to utilizing a single global UTI for these products when reporting to multiple jurisdictions.
- Global Harmonization: Ponniah noted that there are 121 CDE data elements across 6 jurisdictions (EMIR - both UK and EU), CFTC, MAS, ASIC, JFSA and HKMA. 65 out of 121 fields (or 54%) are adopted across all 6 jurisdictions. 48 out of 121 fields (or 40%) are adopted by more than 1 jurisdiction out of the 6 but not all. With the 65 out of the 121 fields that are adopted across all 6 jurisdictions, the implementation at the jurisdictional level has variations making data aggregation across the 6 jurisdictions limited to 41 fields (34%). HKMA is the highest adopter of CDE fields at 113 fields, followed by JFSA at 107, CFTC at 103, EMIR (EU and UK) at 100, ASIC at 89 and MAS with the lowest uptake at 86. All in all, there are some opportunities to align globally and achieve global data aggregation but not for all fields.
Overall, the biggest concerns post EU EMIR Refit go live is there is still a large body of work left to do for broader EU EMIR REFIT obligation, Ponniah said. “EU EMIR REFIT's deliverables did not stop with go-live on April 29, 2024. There is position aggregation reporting which has a go live date in October 2024 and other regulatory statistical reporting, such as periodic reporting and quarterly statistical reporting, which are not daily reports but kick-in in the first periods after go live,” she said. “This EU EMIR REFIT post go live body of work is still consuming a lot of focus and resources alongside the work that is being done to be ready for UK EMIR REFIT.”
On the UK EMIR REFIT side, it has been challenging to achieve a stable implementation period. The FCA published updated schemas in May 2024 and have confirmed they will publish finalized validation rules shortly. Market participants and Trade Repositories will have to scramble to bake those changes in so that they are ready as best they can be for UK EMIR REFIT go live with the latest specifications and validation rules.