A year after EMIR Refit came into effect (in April 2024 for the EU and September 2024 for the UK), the derivatives industry seems to have adjusted to the new requirements. The main pain points were expected to be the switch from CSV to the XML schema and the implementation of UPI. However, the reality was that the transition to XML turned out to be smooth, whereas there are still issues with UPIs, lifecycle event errors and pairing and matching. The additional XML file size and number of lifecycle events appeared to be the cause of trade repositories experiencing some teething issues after implementation dates, which eventually resolved itself.
Overall, there now seems to be a major reduction in error rates
after EMIR Refit and a shift towards heavier reliance on service
providers, given the complexity and regtech services provided to
the market. ESMA has now raised a review of dual-sided reporting
given the reality of compliance burdens and complexities surfacing
after updates to trade reporting regulations.
Major EMIR Refit implementation points
We discuss the transitions that occurred, what was expected and the actual outcome of certain key changes under EMIR Refit below:
- Switching to XML: Despite there being
an expectation that the switch to XML would be one of the biggest
hurdles associated with implementation, the industry seemed to
manage the transition to XML well. The transition from CSV to XML
was a core change under EMIR Refit.
- Initial performance issues with TRs:
There were definitely some stability and performance issues with
some trade repositories in the early days of implementation
however, it appears that these have now settled and resolved.
- Reduction in error rates: The error
rate seems to be down in comparison to pre-Refit levels (see our
article 'ESMA's Data Quality Report – Findings from
their report for 2024' here). For example, in relation to the data
quality indicators (DQIs) below, there were major reductions in
comparison to the statistics in mid-2024:
o Outdated valuations
o Abnormal or blank maturity dates
o Missing valuations
o Incorrect 'entity responsible for reporting'
- Service Provider involvement: Service
providers seem to be playing a more important role now, with the
switch away from CSV requiring automation. More companies in the
industry are using regtech providers, particularly those that offer
reconciliation solutions and automated data preparation. Manual
processing has now become more impractical given the XML
schema's granularity and rigidity.
- Lifecycle event errors: Lifecycle
events such as modifications, compressions and terminations account
for most of the continuous reporting errors and headaches (see our
article on '9 Common XSD Errors in EMIR Refit' here). These errors usually relate to things
such as incorrect event type coding or counterparties' having
inconsistent data.
- Pairing and matching: The
implementation of pairing and matching was delayed and seemed to
have gotten less attention and noise than expected. Many reporting
entities may have underestimated the operational effort needed for
pairing and matching – it still remains a challenge. It also
appears as though ESMA and the FCA may be waiting on phase 2
reconciliations going live in 2026 (April for the EU and September
for the UK) before 'knocking on doors' for not pairing and
matching.
- Potential movement to single side
reporting: ESMA's Call for Evidence suggests the possibility of
moving to single sided reporting. In reference to the
'dual-sided reporting obligation under EMIR and SFTR', ESMA
states (para. 21):
This requires both parties to the trade to report largely the same data. This duplication of effort is resource-intensive and can lead to additional burden due to the need to implement reconciliation mechanisms. This certainly has great advantages in terms of data quality, but in the context of this review, we need to assess whether this requirement, which is unique to the EU, is still appropriate or whether improvements can be made to ensure the quality and scope of data reported, without the need for dual reporting. In the Call for Evidence, ESMA also stated that for 'all scenarios, the revision of dual-sided reporting requirements under EMIR is proposed'. TRAction is of the view that this may be an indication or an admission that pairing and matching is too hard, unrealistic and costly.
- UPI implementation: The UPI system is
functioning after being launched in global trade reporting
regulations however, there is some confusion around the use of
'non-standard', 'standard' and 'other'
categories. ASIC is of the view that UPIs should be without flaw
however, there are some areas of gaps relating to UPIs in ANNA DSB
e.g. cryptos under a market cap of USD 500m cap will end up with
the same UPI and there are sometimes instances, where there is no
option to use the ISIN. (For more information on this, see our
article here).
How can TRAction assist?
If you need assistance in understanding any of the global trade reporting regulations (such as EMIR, MAS or ASIC), how your firm may be impacted, or have issues with trade reporting or any of the other specific issues described above, please contact us.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
