EMIR Refit : Banks require an overhaul of their control processes to stay on top

Getting EMIR Refit right, through future-proofing control and data processes, provides a significant market opportunity for firms to enhance their industry reputation and reap the benefits of regulatory standardisation. Firms that remain laden with legacy applications, or beset by cumbersome manual processes will face hefty penalties from regulators, which could jeopardise their market position over time, according to Phil Flood, Global Business Development Director - Regulatory and STP Services at Gresham Tech.

With the countdown to the EMIR Refit regime ticking closer for both the EU and UK derivatives markets, many buy-side firms remain in the dark about what’s required of them to get up to speed with the new regulation. Meanwhile, the sell-side could be overlooking the operational benefits that are expected to come with getting EMIR Refit right. 

For too long market participants have been complaining about the ambiguity between reportable fields across jurisdictions and the lack of standardisation. Regulators meanwhile have identified that data quality for regulatory reporting is poor, with low matching and pairing rates when it comes to regulations that have been in force for 10 years or more. EMIR Refit therefore provides an opportunity for the EU and UK markets to reset and showcase new standards in automation. By futureproofing their control and data processes firms stand the best chance to meet industry requirements and regulatory developments.

Stricter enforcement actions for misreporting

EMIR Refit represents a unique opportunity for firms to standardise their data processes from manual to automation solutions. By getting EMIR Refit right firms will be well prepared to meet further regulatory updates and developments coming down the track. “It’s about being strategic, by standardising your processes for EMIR Refit, you should be able to get additional regulations right as they all require similarly higher standards in data processes and reporting,” explains Flood.

Firms will need to adapt to face potentially stricter enforcement actions under the new EMIR regime. The recent fines handed down by the Irish and Finnish regulators to firms for breaching their reporting obligations under the first EMIR regime suggests a renewed focus regulators will attach to getting EMIR Refit right. Indeed, the Finish regulator made clear in an announcement: “Data on derivatives markets must be of high quality, comprehensive and up to date, which calls for careful compliance with reporting rules. Data quality is one of the FIN-FSA’s supervisory priorities in 2024.”

Reactive approach will cost firms

With the expectation of higher regulatory standards coming under EMIR Refit, firms need to take a more proactive approach to their regulatory reporting standards. This requires doing the requisite due diligence and being fully up to speed with all aspects of the regulation. “Up until EMIR Refit there’s never really been a big bang moment, it’s more of a smouldering process where firms conduct a period of remediation between different counterparties, by either realising they’re doing it right, or in realising too late that they’re behind the curve”, explains Flood.

Buy-side firms need to communicate timelines regularly with their sell-side counterparts to ensure they’re ticking all the rights boxes. Meanwhile, the sell-side needs to be doing regular testing of their data and reporting processes well in advance of the regime coming into force.

“Since EMIR Refit has been on the market radar for some time now, testing of data processes should be a lot further along the tracks than where they are. Market participants need to avoid a situation where they’re rushing these projects with the sole purpose of trying to hit timelines. It requires getting ahead of the timelines and being as proactive as possible while communicating your timelines for delivery with the relevant industry bodies and market participants, says Flood. 

New regulatory standards set the tone

The FCA’s Digital Regulatory Reporting (DRR) standards and the Common Domain Model (CDM) proposed by the International Capital Markets Association (ICMA) are two important tools that could help overcome any bottlenecks when it comes to implementing reporting standards.

By adopting the CDM effectively, firms can achieve standardised and consistent trade and transaction reporting, enhance data quality and interoperability, and streamline compliance processes. It enables improved transparency, efficiency, and collaboration ensuring compliance with evolving regulatory requirements.

By leveraging DRR effectively, firms can streamline trade and transaction reporting processes, ensure regulatory compliance, reduce operational risks, and gain valuable insights from reported data. DRR has the benefit of implementing machine-readable rules for data harmonised into the CDM model.

Industry solutions will save you time and money

While there is a lot to consider for the buy-side and sell-side in getting up to speed with EMIR Refit, the solutions are staring them in the face. Gresham’s Control Cloud solutions are helping firms automate their reporting standards, thereby helping them significantly reduce costs and improve operational efficiency. This means firms can get on with their front-office responsibilities knowing their data processes and regulatory responsibilities are under control.

EMIR Refit will come into force in the EU derivatives market on April 29th, and five months later down for the UK, on September 30th. ESMA data quality reports expected to be published in the first half of 2025 will indicate the industry progress and determine how many trades failed, or valuations didn’t pair as a result of mis-reporting.

* Phil Flood is Global Business Development Director - Regulatory and STP Services at Gresham Tech.