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 updated technical standards now consist of a total of 203 fields, an increase of 74 fields. In addition to introducing new fields, amendments have been made to the formatting and content of existing fields. Notable fields such as “Trading Capacity”, “Beneficiary Identification” and “Price Notation” have been removed from the dataset.
- Event Type Field: A new field that has been introduced to provide greater transparency around the life cycle of a trade, giving a clearer indication of the life cycle event that triggered the report.
- Unique Product Identifier (UPI): The UPI is a new identifier specifically for derivative products, which complements the information contained in an ISIN and a CFI (Classification of Financial Instruments) code.
- Introduction of ISO20022: The EMIR Reporting is currently moving to support this globally recognized standard for financial data communication, requiring all communications related to EMIR reports to comply with a common XML structural form.
- Technical Standards for Trade Repositories: The Regulatory Technical Standards (RTS) aims to enhance data quality and consistency in EMIR reporting, with a specific focus on the TRs.
- Unique Trade Identifier (UTI): Changes have been made to the UTI generation process with newly defined rules on who should be generating the UTI under different trading scenarios.
These changes represent a significant shift in reporting requirements, calling for market participants to adjust to new data requirements, technical formats and counterparty agreements. For financial firms in the UK and EU, a clear understanding and diligent compliance with the revisions will be key to maintaining compliance and effective risk management.
Significance in Today's Landscape
It is important to comply with EMIR (European Market Infrastructure Regualation) for several reasons:
Regulatory Requirement: EMIR is a European Union regulation proposed to increase the transparency and stability of the derivatives market. Compliance with EMIR regulation is mandatory for financial entities as well as counterparties to derivatives transactions in the European Union (EU) jurisdiction. Failure to comply with this mandate may result in steep regulatory fines and legal consequences.
Risk Mitigation: EMIR enforces the adoption of fundamental risk mitigation techniques, including the mandatory clearing and reporting of derivatives transactions. Compliance with these requirements helps in reducing both counterparty and systemic risk in the financial system, thus, contributing to the overall stability of financial markets.
Transparency: EMIR requires that derivative transactions should be reported to identified trade repositories, providing regulators with crucial data to monitor market activity. This transparency assists regulators in identifying potential issues and taking appropriate measures to maintain the integrity of the market.
Central Clearing: EMIR dictates that specific standardised derivative contracts be cleared centrally. Central clearing substantially mitigates the counterparty risk related to bilateral trading to further strengthen the resilience of the financial system against market disruptions.
Regulatory Oversight: Compliance with EMIR puts financial institutions under close regulatory supervision and oversight by the relevant authorities. Regulatory oversight is essential to ensure that market participants follow best practices and maintain the necessary risk management standards.
International Reach: The implications of EMIR go beyond the EU borders and may impact non-EU entities trading derivatives with EU counterparties. A sound understanding and compliance with EMIR obligations is crucial 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.
Want to hire
Regulation Expert?
Book a call with our experts