By Ben Parker, CEO of eflow Global
Fail to prepare, prepare to fail – it’s a classic adage, like many others, that’s applicable in today’s world, especially when discussing how to become EMIR Refit ready.
Adding two more adages into the mix, some firms have taken a “better late than never” approach to implementing the new operational processes that are required to comply with EMIR Refit. However, in reality, the view should be “better safe than sorry”, as being unprepared for the deadline is likely to leave firms in a precarious position of non-compliance.
As a real-life example, just two weeks before the EU’s EMIR Refit deadline on April 29th, an Italian energy company contacted eflow and outlined their expectations for a fully compliant, technology-based solution to be implemented from scratch. While we pride ourselves on our efficient and rapid client onboarding, it’s concerning that the firm thought that the transition from a partially constructed, manual process to a seamless and fully automated transaction reporting system could be implemented in less than a fortnight.
And this case isn’t unique; it’s just one of many examples. Whether it is a laissez-faire attitude to the potential consequences of the new regulations, misplaced trust in legacy systems and their ability to adapt to the new reporting requirements, or just simply not understanding the task at hand – it is a trend that needs to change quickly.
Ultimately, UK firms have been granted a rare gift with EMIR Refit: the benefit of hindsight. As the 30th September deadline gets ever closer, it’s crucial for UK firms to learn from the experiences of their European counterparts and avoid similar pitfalls.
The changes we know
Central to the new regulations is the adoption of ISO 20022, a global standard for financial data management. This standard mandates that all EMIR reports be formatted in a specific XML structure.
The technical standards now encompass the reporting of 203 data fields – an increase of 74 – alongside modifications to existing fields. This expansion necessitates the collection and integration of new counterparty information, placing additional demands on firms’ data management capabilities. The introduction of the “Event Type” field further complicates matters by demanding detailed tracking of trade lifecycle events, further increasing the reporting burden placed on firms and their compliance teams.
The Regulatory Technical Standards (RTS) from ESMA place a heightened emphasis on data quality, mandating rigorous verification of the accuracy and completeness of submitted data. Additionally, the implementation of Unique Product Identifiers (UPI) and revised Unique Trade Identifier (UTI) processes adds another layer of complexity.
To compound all of this, the stakes are rising and the consequences are worsening. Non-compliance not only risks regulatory penalties but also tarnishes an organisation’s reputation, with the FCA’s new ‘name and shame’ approach serving as a deterrent. And while some aspects may benefit from a transition period, this should not be misconstrued as a grace period. Meaning that excuses such as ‘we didn’t know’ or ‘we are close to being ready’ will not be enough to avoid penalties. Especially when you consider that the changes were introduced in January 2023 and we have already seen them come into effect across Europe.
The changes we need
The changes mentioned above may sound fairly straightforward to implement. However, in reality, time is running out for firms to execute the significant operational and regulatory adjustments that are required for EMIR Refit.
The best prepared firms will already be well into the final testing phase of their new reporting systems to ensure a smooth transition at the end of September. And yet, there are still firms out there that are only at the start of the EMIR Refit journey, with some still determining whether they even need to report in the first place.
This hesitation can be partly attributed to an underestimation of the required changes and the extensive time necessary to implement a new, robust EMIR reporting system. This attitude towards compliance can sometimes reflect a deeper issue at a firm. A nonchalant approach to fines and non-compliance can suggest that the regulatory ‘stick’ is not perceived as sufficiently threatening to spur action. This complacency is a barrier to the proactive engagement needed for effective compliance.
Ultimately, the EMIR Refit is not just a gentle regulatory update; it requires a fundamental shift in compliance processes and attitudes. Firms must recognise that the scale of change extends beyond surface-level adjustments and demands a strategic, long-term commitment to overhauling existing systems.
The changes we can make
Getting ready for EMIR Refit starts with embracing technology. Realistically, the use of technology is the only way firms will have the necessary tools to deal with the volume and sophistication of data that they need to report on. However, implementing this technology is by no means a ‘quick fix’. It still requires robust operational planning to ensure that it can do its job effectively.
First, businesses must review their existing reporting processes. This step ensures that any current digital systems align with EMIR’s new requirements and, in the case where firms are reporting manually, that they have sufficient resources deployed to handle the additional volume of data and new reporting formats that are required.
Next, firms that do have an existing technological solution must ensure that it can be reconfigured to meet the sophisticated demands of EMIR Refit. For example, does it collect all of the data fields that will be required? Will the reports generated by the system be in the new XML format? Does it collate the Unique Product Identifier which bridges a critical detail gap between CFI and ISIN codes?
Finally, there is the obvious need for robust user acceptance testing to ensure that updated systems behave as anticipated, meet practical business needs, and function seamlessly in real-world scenarios.
The bottom line
As firms prepare for the 29th September, having a well-defined strategy for EMIR Refit is crucial. This includes detailed timelines, clear communication channels, and contingency plans to address any unexpected challenges.
It may sound like a lot to consider, but in reality firms are not in a position to pick and choose. EMIR Refit has been on the horizon for several years and time is running out for organisations to get their house in order. Action needs to be taken now.
The good news is that the use of technology will help to streamline and future-proof firms’ regulatory strategy. Without it, responding to the ever-evolving world of regulatory change is likely to be even more complicated and time consuming for businesses to manage.
