There is now just over a year until the implementation date for the much-anticipated changes to the European Markets Infrastructure Regulation (EMIR), the next step in the long road towards a more globally harmonised approach to trade reporting.
The new requirements – known as EMIR Refit – are set to go live on 29 April 2024 and represent an important landmark in tackling the fragmented nature of global reporting regimes. Despite the fast-approaching deadline, concerns are growing around the industry’s preparedness, with a recent survey from Novatus Advisory finding that 40% of UK firms have no plans in place for the changes, for instance.
Throughout 2022, financial institutions were focused on their implementation efforts for the rewrite of the Commodity Futures Trading Commission’s swaps reporting requirements (CFTC Rewrite), which went live on 5 December. Both the CFTC Rewrite and EMIR Refit are part of the same drive to standardise trade reporting globally. While EMIR Refit was originally anticipated to roll out first, implementation suffered from repeated delays to its technical specifications, in particular the new ISO 20022 format. The ISO 20022 mandate was eventually excluded from the first phase of the CFTC Rewrite, hence the earlier go-live date.
In parallel, the Digital Regulatory Reporting (DRR) programme has emerged as a key driving force in helping firms adapt to continually evolving reporting requirements. Having participated in the DRR build-up for their CFTC Rewrite preparations, how can firms leverage these efforts to comply with EMIR Refit in 2024?
To understand the new EMIR requirements, it is important to first look at the two main pillars in the global push to greater reporting harmonisation.
The first is the Committee on Payments & Market Infrastructures and International Organization of Securities Commission’s (CPMI-IOSCO) Critical Data Elements (CDE). These were first published in 2018 to work alongside other common standards including the Unique Product Identifier (UPI) and Unique Trade Identifier (UTI). These offer technical guidance, providing harmonised definitions of data elements for authorities to use when monitoring over the counter (OTC) derivative transactions. By providing standardised definitions and formats, the CDE allow for improved transparency on the contents of the transaction and greater scope for the interchange of data across jurisdictions.
The second is the mandating of ISO 20022 as the internationally recognised format for reporting transaction data. Historically, trade repositories required firms to submit data in a specific format that they determined, before applying their own data transformation for consumption by the regulators. The adoption of ISO 20022 under the new EMIR requirements changes that process by shifting the responsibility from trade repositories to the reporting firm, with the aim of enhancing data quality and consistency by reducing the need for data processing.
DRR is an industry-wide initiative to enable firms to interpret and implement reporting rules consistently and cost-effectively. Instead of each firm individually interpreting the rules, DRR allows market participants to work together to develop a standardised interpretation of the regulation and store it in a digital, openly accessible format. This is a marked shift from the current process where every reporting firm creates their own reporting solution, inevitably resulting in inconsistencies and duplication of costs.
Importantly, firms which are using the rewritten CFTC rules which have been encoded in DRR will not have to build EMIR Refit from scratch. ISDA estimates that 70% of the requirements are identical across both regulations, meaning firms can leverage their work in each area and adopt a truly global strategy. In particular, DRR has already developed a library of CDE rules for the CFTC Rewrite, which can be directly re-applied to EMIR Refit. Even when those rules are applied differently between regimes, the jurisdiction-specific requirements can be encoded as variations on top of the existing CDE rule rather than in silo.
Notably the UPI, having been excluded from the first phase of the CFTC Rewrite roll-out, is mandated for the second phase due in January 2024. DRR will integrate this requirement, as well as others such as ISO 20022, and develop a common solution that can be applied across the CFTC Rewrite and EMIR Refit.
As firms begin their own build, the industry should adopt a joined-up approach to reviewing, testing and implementing the DRR model. Maintaining the commitment of all DRR participants will strengthen the community-driven approach to building this reporting ‘best practice’ and serve as a template for future collaborative efforts.
Although most firms are primarily focused on implementing the second stage of the recent CFTC Rewrite and preparing for next year’s EMIR Refit, several more G20 regulatory reporting reforms are expected over the next few years. These include rewrites to the Australian Securities and Investments Commission (ASIC), Monetary Authority of Singapore (MAS) and Hong Kong Monetary Authority (HKMA) derivatives reporting regimes, amongst others.
To navigate these updates, firms should plan for the entire global regulatory reform agenda rather than prepare for each reform separately. Every dollar invested in reporting and data management will go further precisely because it is going to be spread across jurisdictions, easing budget constraints.
The first step for financial institutions seeking to establish a broad and long-term plan is to learn from their CFTC Rewrite preparation and how DRR can be positioned in their implementation. For example, firms should ask themselves which approach to testing and implementing DRR works best: via their own internal systems or through a third-party? Firms should review what worked well in their CFTC Rewrite implementation and apply successful methods to EMIR Refit. Doing so will enable firms to have a strong foundation for future updates in the years to come.
REGnosys can help reporting firms navigate this journey, from end-to-end testing of DRR to moving into production. We can support benchmarking of existing CFTC Rewrite implementations and EMIR Refit preparations. Our Rosetta platform is the first and only low-code collaboration solution dedicated to DRR. Rosetta equips DRR participating firms with a shared language to digitise the reporting requirements in a transparent, standardised and cost-effective way.
To find out more about our Rosetta platform and how we are working with firms to prepare for the EMIR Refit, you can read about our technology here or get in touch for an initial discussion.