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Tackling the Challenges of EMIR Refit

By DTCC Connection Staff | 5 minute listen | March 30, 2023

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, Andrew Pinnington-Mannan, DTCC Consulting Services' Head of Regulatory Reporting Practice, unpacks the difficulties firms may face as they prepare for the trade reporting rule changes under EMIR Refit.


From DTCC, you're listening to Take 5, a bite-sized post-trade financial services podcast that tackles an industry topic or trend in just five minutes. Tune in to hear a DTCC executive share their perspective on how to grow, prosper and protect the global financial markets. There's a lot to uncover in five, so let's start the clock.

Hi there. I'm Andrew Pinnington-Mannan and I lead the regulatory consulting practice for DTCC Consulting Services.

What I want to talk to you about today are the challenges firms face when implementing the EMIR Refit. Firms have got just over a year until the EU EMIR Refit go live in April 2024 and obviously the UK equivalent later on in 2024. So, the challenge firms are going to face is data mapping. Ultimately, the challenge is: how do firms find the data they need to report from their internal data sources?

Often firms will have to synthesize or harmonize that data internally from multiple upstream internal systems. It's not uncommon for there to be more than ten systems involved in that process, which is obviously very complex. Then there's the added challenge that many firms have no real data lineage, i.e. they don't have transparent documentation showing what they've currently implemented and where to get the data from. So that's a problem that firms will continue to need to address and overcome as part of EMIR Refit.

A significant new challenge that firms are going to face is back reporting and the changing expectations of regulators when it comes to correcting errors. So, the expectation from regulators is now that firms correct each event that has been reported incorrectly rather than merely updating the latest state of the positions to what it should be, and that's going to exponentially increase the number of corrections firms need to submit. And from painful personal experience, I know that firms are going to struggle with this enormously. It will also mean that existing agreements firms have with regulators, however informal, in regards to back reporting and error correction will be null and void. So this is really going to have a transformation impact on firms’ exception management and replay capability. It's been a lot of conversation in the industry around moving to a new messaging standard for EMIR Refit: ISO 20022 XML. So many larger firms have already been through this with SFTR, so it's likely to be more impactful for smaller firms who use their own proprietary reporting systems and haven't had to report under SFTR.

What's more impactful in my view, is the fact that trade repositories have to produce responses and their end-of-day reports in that format too, something which is likely to impact existing processes at a number of firms: things like reconciliations and other end of day or post submission processes. Identifiers are always an interesting one - how firms consume the UPI or unique product identifier and where they consume it within their architecture. It's something firms are going to have to figure out for the next phase of CFTC reporting rather than going live for the first time during EMIR.

There is a lot of noise about UTIs, the unique transaction identifier, mainly driven by vendors interested in selling products, to be honest. But the interesting change on that side is that there's an explicit requirement for UTIs to be shared by generators by 10 a.m. on T+1 with their counterparties. Firms will have six months to update positions to the new reporting standards if they're live as of the go live date. So finding this kind of new data for trades which may be very aged is likely to be a challenge. What will also be a challenge is that there's no guarantee that firms will do this at the same time. Firms have got six months to update it, so for six months, the inter-TR reconciliation or the kind of counterparty reconciliation between firms is likely to be very messy and require a lot of oversight.

Last but not least, one of the big changes is the threshold for communicating issues to regulators, which has been introduced. So that's not left down to each firm's risk appetite any longer. There are clearly defined thresholds above which firms should be reporting issues to their national competent authority if they have any reporting issues. There's a really interesting impact on delegated reporting from this as well, with firms that provide delegated reporting to their clients now having to disclose issues with their reporting to their client’s regulator, which is again, something which makes me glad I'm no longer in an BAU reporting role, but something which is going to be really difficult for firms that provide delegated reporting to think about how they manage and the communications around that.

So we know firms are currently in their impact assessment and rule interpretation phase for EMIR Refit, really trying to figure out how this impacts them, what they need to do to change their processes, their data and everything else to make sure they're compliant with EMIR Refit. We're working with a number of organizations to help get them ready for the EMIR Refit, all the way from impact assessment through to data mapping, through to testing. So we stand ready and able to help firms that require subject matter expertise and deep technical expertise in trade and transaction reporting.

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