Is your firm ready for the upcoming EMIR Refit?

The main enhancements of the EMIR Refit will be in the following areas:

1. Reporting fields;

2. Life cycle reporting;

3. Upgrade to ISO 20022 messaging format;

4. Updated pairing and matching requirements;

5. Unique Product Identifiers (UPIs) and Unique Trade Identifiers (UTIs) reporting requirements; and

6. Responsibilities.

Reporting fields

The number of reporting fields will increase from 129 to 203. There will be 160 new or modified reporting fields—one of the most significant changes introduced by the Refit. To satisfy these updated reporting requirements, firms must identify potential data gaps and ensure that they have sufficient data sources to support the updated reporting fields. Moreover, firms will have to define a reporting logic for new and modified fields and consider the adaptation of interfaces to source systems if required.

Life cycle reporting

There will be several updates to the current reporting of action types. These updates will provide for additional scenarios concerning the trade’s life cycle.

Updates in the reporting logic will be needed to account for these changes, and must be supported by the correct data between reporting parties.

The EMIR Refit also introduces event types alongside action types, resulting in 34 action/event-type scenarios. Counterparties (CPs) should look to map all 34 action/event-type scenarios to business events in source systems for all asset classes while integrating these into the reporting system.

Upgrade to ISO 20022 Messaging Format

The lack of regulatory guidance on format requirements has led to different submission and response formats among the Trade Repositories (TRs). The upgrade to ISO 20022 messaging format looks to standardise submission and response formats across the TRs, which will assist the  National Competent Authority’s (NCA) reconciliations.

Furthermore, any open transactions on the EMIR go-live date must be updated to this new format (also known as backloading). Firms should consider what trades will be open as of the go-live date and resolve their EMIR 2.0 error backlog to simplify this EMIR Refit requirement.

To support this transition to the ISO 20022 XML reporting system, the European Securities and Market Authority (ESMA) has stated that there will be a six-month transition period that will end in October 2024. 

Updated pairing and matching

EMIR Refit also introduces stricter pairing and matching requirements. The TRs will pair two trades through the UTI; it will then reconcile the underlying reporting fields to identify any differences in the CPs’ reporting. The outcome of the TRs review of the trade’s reporting can then be downloaded by the reporting parties to identify any errors or omissions they may have made.

The updated pairing and matching rules will lead to an increase in the number of matching fields. While currently only 47 fields are matching fields, the number will increase to 87 once EMIR Refit comes into force and then to 148 in 2026.

Firms should familiarise themselves with these new fields and align with CPs on how to report them and resolve issues. This will decrease the likelihood of reconciliation breaks. However, even after these steps, firms should define, document and implement an operating procedure for handling reconciliation breaks.

Unique Product Identifiers (UPIs) and Unique Trade Identifiers (UTIs)

The Refit has introduced the requirement for CPs to provide UPIs, and it will change the existing UTI generation logic and waterfall-based approach.

The change in the UPI approach will require CPs to establish a framework that:

• sets out the UPI architecture that will be used;

• establishes a data flow for UPI retrieval that will correspond with that of ANNA DSB (the sole provider of UPIs);

• storage systems for retaining UPIs and their International Securities Identification Number (ISIN); and

• implements a logic for reporting ISIN or UPI as only one of the identifiers can be reported depending on the scenario.

The UTI is an alphanumeric code that allows each reported trade under EMIR to be uniquely identified. It plays a crucial role in the pairing and matching process by the TRs. It can be generated by either of the two parties to the transaction, or by a third-party involved in the transaction. Certain UTI generation “waterfall” rules apply under EMIR 2.0 and EMIR REFIT.

Regarding the UTI changes, CPs are no longer allowed to determine UTI generation responsibility through bilateral agreements as the first option of the waterfall. Another change under EMIR Refit is the new step in the waterfall, which checks for a cross-jurisdictional transaction.

The impact of updated waterfall logic must be analysed based on current practice. Processes with CPs must be aligned with respect to the updated waterfall logic, and potential adjustments to bilateral agreements must be identified. Firms should monitor regulatory updates and determine how to deal with cross-jurisdictional transactions.

There will now be a deadline of 10am UTC on T+1 to provide a UTI. This will require firms to be proactive in ensuring UTIs are generated before the deadline.

Responsibilities

Where reporting breaches occur, firms will be required to calculate the significance of the issues and report these to their NCA. The responsibility to notify NCAs lies with the entity responsible for reporting. ESMA has clarified what is required as part of these submissions, and firms should be prompt in submitting breach reports to ensure compliance with NCA requirements. When a firm is delegating the EMIR reporting to their CPs, they need to consider different delegation scenarios (e.g. NFC or FC delegating the reporting to an FC) since it varies which side has to take on which obligation.

On 23 October 2023, ESMA released its guidelines for reporting under EMIR. This comprehensive guide to the new EMIR reporting regime includes a great level of detail, which firms should diligently review to ensure their reporting framework matches the requirements set out in the guidelines.

Due to the significant reporting requirements of EMIR Refit, firms tend to delegate the reporting requirement to CPs or third-parties. The Central Bank of Ireland (CBI), in its 2019 letter on EMIR, stated that firms delegating their reporting to a CP or a third-party must have sufficient policies and procedures in place to oversee the delegate’s reporting and ensure compliance with EMIR regulation.

The CBI in November 2023, issued a significant fine to a firm for failing to satisfy the EMIR reporting requirements. This scrutiny by the CBI of EMIR frameworks is likely to grow once the EMIR Refit goes live.

Key actions businesses can take today

1. Review delegation procedures

Firms can choose to outsource some of their EMIR obligations. This can result in complex outsourcing arrangements that can hamper reporting if sufficient reporting frameworks are not in place. This is particularly important since the report-submitting CP is obliged to inform the delegating CP about the quality and status of their reporting.

2. Sharpen NCA reporting requirements

Especially for the new reporting responsibilities requirements (performance of the significance assessment and notifications of issues to NCAs), it is important to analyse the various (delegation) scenarios and the resulting requirements (e.g. notification of the NCA or/and the CP of any/only significant errors).

3. Update existing trades

All open transactions must be updated via backloading to meet the new requirements of the EMIR Refit. To achieve this, the data from open transactions must be determined and prepared to populate the new fields.

4. Prevent matching breaks

The number of matching fields has also been increased, and the tolerances have been partially updated. It is advisable to analyse matching breaks under the current EMIR reporting regime and derive or prevent possible future matching breaks.

5. Ensure UPI acquisition

The connection to Anna DSB must take place, and banks must therefore decide on a suitable connection architecture.

We are here to help you

We can help your firm identify weaknesses in its EMIR reporting framework, enhance alignment among EMIR outsourcing arrangements, and ensure compliance with regulatory reporting by performing impact assessments. We can also help you resolve any issues identified to improve the validity, efficiency and accuracy of reporting.