Emerging & Specific Regulation
EMIR
The latest changes in EMIR (European Market Infrastructure Regulation), impacting financial services in the UK and EU, are primarily driven by the EMIR Refit, also referred to as EMIR 3.0. These changes are set to enhance the harmonization and standardization of reporting under EMIR, with the goal of better monitoring systemic risk and containing costs for market participants and trade repositories. The EMIR Refit is scheduled to go live on April 29, 2024, in Europe, and September 30, 2024, for the United Kingdom.
Overview of Topic
Key changes include:
New Reportable Fields: The technical standards now include a total of 203 fields, an increase of 74 fields. These changes not only introduce new fields but also modify the format and content of existing ones. Some fields, such as “Trading capacity”, “Beneficiary ID”, and “Price Notation”, have been removed.
Event Type Field: This new field is intended to increase transparency around the lifecycle of a trade, providing a clearer indication of the lifecycle event which triggered the reporting.
Unique Product Identifier (UPI): The UPI is a new identifier for derivative products, complementing the information captured by the International Securities Identification Number (ISIN) and Classification of Financial Instruments (CFI) code.
Introduction of ISO20022: This global standard for communication of financial data is now introduced for EMIR Reporting, requiring all messaging of EMIR reports to be done according to a standardized XML structure.
Technical Standards for Trade Repositories: The Regulatory Technical Standards (RTS) have been introduced to enhance the data quality and consistency in EMIR reporting, specifically aimed at trade repositories.
Unique Trade Identifier (UTI): Changes have been made to the generation process of the UTI, with new rules specifying the responsible entity in different trading scenarios.
These changes represent a significant overhaul in reporting content, requiring market participants to adapt to new data requirements, technical formats, and counterparty agreements. For financial services firms in the UK and EU, understanding and implementing these changes will be crucial for maintaining compliance and effective risk management.
Significance in Today's Landscape
It is important to comply with EMIR (European Market Infrastructure Regulation) for several reasons:
Regulatory Requirement: EMIR is a European Union regulation designed to enhance the transparency and stability of the derivatives market. Compliance with EMIR is mandatory for financial institutions and counterparties engaging in derivatives transactions within the EU. Failure to comply can result in regulatory penalties and legal consequences.
Risk Mitigation: EMIR imposes risk mitigation measures, such as mandatory clearing and reporting of derivatives transactions. Compliance with these measures helps reduce counterparty and systemic risk in the financial system, contributing to the overall stability of financial markets.
Transparency: EMIR requires the reporting of derivative transactions to trade repositories, providing regulators with access to essential data for monitoring market activity. This transparency helps regulators identify potential issues and take appropriate actions to maintain market integrity.
Central Clearing: EMIR mandates central clearing for certain standardized derivatives contracts. This central clearing process reduces the counterparty risk associated with bilateral trading, making the financial system more resilient to market shocks.
Regulatory Oversight: Complying with EMIR means that financial institutions are subject to regulatory oversight and supervision by relevant authorities. This oversight helps ensure that market participants adhere to best practices and maintain the necessary risk management standards.
International Reach: EMIR has implications beyond the EU, as it can impact non-EU entities that engage in derivatives transactions with EU counterparties. Understanding and complying with EMIR requirements is essential for entities operating in global financial markets.
WHO DOES IT IMPACT?
EMIR is not limited to regulated entities like banks or funds. It applies to any undertakings
established in the EU which has entered into a derivatives contract.
How Can We Help?
T3 Consultancy can offer a variety of services specifically related to the European Market Infrastructure Regulation (EMIR) to help clients navigate and comply with its requirements:
1
EMIR Compliance Analysis
Assessing clients’ current compliance status with EMIR requirements, identifying gaps, and recommending necessary actions to ensure compliance.
2
Regulatory Reporting Assistance
Assisting clients in understanding and fulfilling their reporting obligations under EMIR, including advice on reportable fields, reporting format changes, and understanding the unique trade and product identifiers.
3
Risk Management Consulting
Offering strategic advice on risk mitigation techniques required under EMIR, including clearing obligations for OTC derivatives and risk management practices for derivative contracts.
4
Training and Workshops
Providing tailored training sessions and workshops to educate staff on EMIR regulations, reporting requirements, and risk management strategies
5
Technology Solutions for EMIR Compliance
Implementing or optimizing technology systems and tools to facilitate EMIR reporting, including adapting systems to the ISO 20022 XML reporting format and ensuring accurate data submission
6
Counterparty Classification Services
Assisting clients in classifying counterparties as Financial Counterparties (FCs) or Non-Financial Counterparties (NFCs) and understanding the implications of these classifications.
7
Clearing and Collateral Advisory
Advising on the EMIR clearing requirements for certain classes of OTC derivatives and assisting in the management of collateral requirements.
8
Regulatory Liaison and Advocacy
Acting as a liaison between clients and regulatory bodies, and advocating on behalf of clients in relation to EMIR matters
9
Ongoing Regulatory Updates and Support
Providing ongoing updates on changes and amendments to EMIR, including EMIR Refit, and offering continuous support to ensure long-term compliance
10
Compliance Audits and Reviews
Conducting comprehensive audits and reviews of clients’ compliance with EMIR, including their reporting, risk management, and clearing practices.
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