Under EMIR, significant changes have been made to the reporting rules applicable to derivatives users. The new reporting rules will apply to counterparties from 29 April 2024 for both new and outstanding derivatives transactions.
EMIR Refit
In May 2019, we provided a series of updates on EMIR Refit ahead of that legislation entering into force in June 2019: these are available here, here, here and here. While the majority of the new requirements under EMIR Refit applied upon the regulation entering into force, other requirements are being phased in. Amongst other matters, EMIR Refit mandated the preparation of updated rules in relation to the existing requirement on transaction parties to report the details of all OTC and exchange-traded derivative contracts that they conclude, modify or terminate to a trade repository by the end of the next working day.
In October 2022, the European Commission adopted a new RTS and new ITS which will repeal and replace the current RTS and current ITS on transaction reporting. The European Securities and Markets Authority (ESMA) has also published reporting guidelines, a validation rules, reconciliation tolerances and template for notification of errors and omissions in reporting document, XML EMIR Reporting Schemas and a mapping table for EU counterparties and trade repositories : these are available here. The validation rules, reconciliation tolerances and template for notification of errors and omissions in reporting document was recently further updated on 6 September 2023. Together, this new legislation and the materials published by ESMA constitute the new reporting rules under EMIR. They will be in force from 29 April 2024.
New Reporting Rules
The changes to the reporting rules are significant and increase the complexity of transaction reporting. From 29 April 2024, all new reports (including for modifications and terminations of derivatives entered into before that date) will need to comply with the new reporting rules. Moreover, by no later than 26 October 2024 reporting entities will also need to update reports for any derivatives outstanding on 29 April 2024 to ensure that these comply with the new requirements.
Key Changes
From the perspective of derivatives users, the material changes that the new reporting rules will make to the existing regulatory regime include the following:
- The introduction of a new requirement for reporting entities to promptly notify regulators of certain types of significant errors or omissions in its reporting. A reporting entity must notify any misreporting caused by flaws in the reporting systems that would affect a significant number of reports; any reporting obstacle preventing the report submitting entity from sending reports to a trade repository within the reporting deadline; or any significant issue resulting in reporting errors that would not cause rejection by a trade repository. ESMA has provided further clarification of what is required in this regard in its reporting guidelines. If a notification is required, the reporting entity must notify its national competent authority and, if different, the national competent authority of the reporting counterparty. The Central Bank of Ireland (CBI) is the national competent authority in Ireland.
- The number of reportable fields will increase from 129 to 203 (although some fields will only be required for specific asset classes, contract types or post-trade events). There are also a number of amendments to existing reportable fields.
- To ensure consistency of reporting, reporting entities must submit reports using a common XML template based on ISO 20022 standards (the same format used for transaction reporting under the Markets in Financial Instruments Regulation and the Securities Financing Transactions Regulation).
- Reporting entities and report submitting entities (if different) will need to have arrangements to take account of feedback received from trade repositories regarding reconciliation breaks (i.e. where two reports of the same trade do not match). The ESMA reporting guidelines also set out expectations for reconciliation breaks to be corrected.
- Reporting entities will be required to keep their legal entity identifiers (LEIs) renewed. This is to reduce the risk of trade repositories rejecting reports where LEIs have lapsed.
- Entities wishing to use position level reporting (as opposed to the standard transaction reporting at trade level) will need to agree this with their counterparties.
EMIR Compliance Policies
Since the coming into force of EMIR in 2012, the CBI has issued a number of guidance statements and recommendations in relation to EMIR. For example, in its EMIR reporting letter of 20 February 2019, the CBI recommends that compliance with the transaction reporting rules under EMIR should be a standing agenda item at all board meetings for Irish entities trading derivatives. Moreover, in its third Securities and Markets Risk Outlook Report published on 2 March 2023 the CBI stressed that it expects derivatives users to "have appropriate oversight of data reporting from Board level down (including where data reporting is outsourced)". In particular, the CBI expects formalised policies and procedures to be in place to ensure compliance.
Given this background and the forthcoming new reporting rules, we have seen a number of our clients putting in place formal EMIR compliance policies which are approved at board level. These policies cover compliance with the EMIR transaction reporting rules, as well as compliance with EMIR more generally. For further information, please contact Richard Kelly, Alan Bunbury or your usual Matheson contact.
This article is provided for general information purposes only and does not purport to cover every aspect of the themes and subject matter discussed, nor is it intended to provide, and does not constitute or comprise, legal or any other advice on any particular matter.