In just 5 minutes, we’ll explore the world of post-trade financial services by way of new ideas, insight snippets, emerging trends, and thought-provoking questions. In this episode, tune in to hear Sam North, DTCC Executive Director of RDS Product Management discuss the latest updates on EMIR Refit, challenges that firms are facing in light of the many changes and how DTCC can help.
Transcript:
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Hi there. I'm Sam North, European head of Product Management on DTCC’s Global Trade Repository Service.
Right now, we are laser focused on our EMIR Refit build -- this is to ensure our EMIR trade repositories registered in both the UK and the EU are compliant for when the new rules hit -- this is April 2024 for the EU side and September 2024 for the UK side. In addition to that, we have recently published our EMIR Refit specifications so clients can start their own build and be ready for our first UAT to open in October 2023 for EU EMIR.
In the last couple of months, we have been very engaged with our client base. This is both through in-person meetings but also through our working groups as well. We are hearing lots of concern around the complexity that EMIR Refit introduces.
Now, you do have the big ticket items such as the move to ISO 20022 XML. Firms do need to have a solution in place to create those XML files and also be able to ingest our XML response files as well. You do also have the UPI and firms need the ability to create, ingest, share, store and report that UPI into the trade repositories. And of course, you have 74 additional fields being introduced within EMIR Refit. I know many firms are working on the data lineage for these new fields that have been introduced just to ensure they have all the correct data elements, and clearly this is a major task for firms right now.
In addition to these major items, there are areas in the guidelines at complexity but have been buried in the TR sections. The first one I'm going to call out is historical corrections from a perspective TRS must support back reporting and updating the trade state historically based upon a reported event date. Now this is new for trade repositories, but what does this mean for counterparties? Do you have that correct economic data for that historic date? Do you have the correct historic reference data stored to make sure that you can report that historic report correctly?
The next thing is trade state management. So currently today the trade repositories operate on the “latest is greatest” model whereby if you report into the trade repository today, this would be reflected back in your trade state reports tomorrow on a latest is greatest basis. With the move to the EMIR Refit rules the trade state and the reconciliation will be operating on a two-day lag based upon the event date and not through a latest is greatest model. What this means in reality is that if you report on a Monday, with event date Monday, and your counterparty reports on Tuesday, but with an event date Monday, both of these submissions would appear in the trade state report that gets generated on a Wednesday. Clearly, firms are going to need to update their operational procedures and control frameworks to account for this two-day lag. I do know some firms used to report on T, and then if they encountered any issues or misreporting issues with their submissions, then they would correct them and rereport them in T+1, still within the reporting deadlines as well. So, this makes that control much more challenging.
The next item I would like to call out is the transition period. So, every firm must know now that they have to upgrade all of their open trade population within six months of go live with a submission with action type modification and an event type update. What you may not know is that trade repositories must also go through a harmonization exercise where they align all the trade state data in the trade repository dating back to 2014, and this encompasses all the different technical standards and changes that have taken place over the years. And this harmonization exercise is taking place to ensure that all the data is in the same shape and can be reported in the ISO XML as specified by both ESMA and the FCA. Now firms, while this is a trade repository exercise, ultimately firms do need to consider how they're going to validate this exercise because ultimately it is their data sitting in the trade repository.
So, all in all, lots of changes and impacted firms do really need to be looking at it right now. If you read the guidelines, I think you'll see that the regulators are going to be intensely focused on the data quality, even within the transition period itself. ESMA have even specified how to determine if a reporting issue is significant or not, and also how to determine if it should get reported to your national competent authority and the national competent authority of your counterparty if you report on their behalf. What this means ultimately is that counterparties are supposed to have controls of the highest quality in place to identify and in turn remediate issues as quickly as possible. The regulators will be able to tell if there have been significant issues, as they can get access to a whole suite of trade repository reports. This includes rejection statistics, reconciliation statistics, late reporting data, which is on top of all the standard trade state and activity reports that they can get access to as well. This even further enhances the need for the industry to focus on their controls and their controls frameworks.
As always, DTCC is here to help every step of the way. We are hosting our working group on a fortnightly basis, which is extremely well attended, where we're covering the key issues and changes that are coming down the pipe with EMIR Refit. We are publishing our usual product documentation over the next few weeks. We're going to be hosting webinars and producing learning guides as well. Thanks for listening.
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