The EU and UK EMIR (European Market Infrastructure Regulation) Refits represent a significant evolution in the reporting of derivatives transactions. The introduction of new ISO 20022 XML formats, mandatory Unique Product Identifiers (UPIs), an expansion to over 200 reporting fields and more stringent reconciliation expectations requires firms to fundamentally rethink and enhance their transaction reporting control frameworks. In this evolving landscape, a robust, automated and end-to-end control framework, informed by subject matter expertise, is not merely an expectation of regulators. Rather, it is essential for ensuring the resilience of regulatory operations.
We have identified the practical components of a post-Refit EMIR transaction reporting control framework, focusing on proactive, data-driven and fully auditable controls.
Key Areas of Focus for Post-Refit Control Processes
A successful control framework must address several critical stages of the reporting lifecycle, from initial data sourcing to post-submission monitoring.
Full Transparency into the Reporting Lifecycle
EMIR transaction reporting is a multi-stage process encompassing trade capture, data enrichment and aggregation, message transformation to ISO 20022, validation, submission to a trade repository (TR) and post-reporting oversight. The control framework must ensure complete transparency at every step. This involves process-mapping the front-to-back data flow to identify automated processes, manual hand-offs and existing control points. Once mapped, firms can analyze where controls can be enhanced or where manual processes could be automated to reduce operational risk.
Source System Data Point Controls
With over 200 data points in the updated EMIR Refit specification, firms must have a clear line of sight of where each data point is sourced, and ensure sufficient controls exist around data flow and any amendment functionality. It is critical to validate both proprietary and counterparty static data. While the LEI is a primary identifier, fields such as corporate sector, nature of the counterparty, and the reporting obligation of counterparty two are vital for a successful reconciliation process. Implementing validations for each data point and maintaining robust version control over all processes impacting EMIR reporting are fundamental to ensuring data integrity.
Pre-Submission Data Aggregation and Validation
Any steps between an automated data run and the final submission to the trade repository must adhere to strict principles of control and validation. This is a critical juncture to check for missing, malformed or invalid data specific to asset class and contract type. It is also necessary to ensure that linked data points, such as action type, event type and associated timestamp fields, are aligned with EMIR Refit validation rules. To mitigate risks associated with new product types, leveraging the trade repository’s UAT environments can limit real-world exceptions.
Intra-Day Exception Management
Regulators expect that any trade repository rejections are resolved intra-day on T+1 to prevent late reporting. A proficient exception management process is therefore a necessity. Key components of an effective process include:
- Automating the rejection file download and assignment process where possible.
- Establishing clear roles, responsibilities and SLAs for exception handling within the team.
- Maintaining clear documentation on how each exception type is resolved, including any valid override functions.
- Implementing intra-day review processes to ensure the entire reporting population is covered on T+1.
- Regularly reviewing rejection trends and applying root cause analysis to implement fixes through a formal change control process.
Post-Submission Monitoring
After submission, a firm's responsibility continues. It is imperative to use end-of-day reporting to ensure the data visible to regulators is complete and accurate. This requires actively monitoring reconciliation and trade state reports to confirm that dual-sided reporting is correctly reconciled. Regulators expect firms to monitor these breaks and implement process improvements in a controlled manner to drive continuous enhancement.
Ongoing Training and Regulatory Awareness
The regulatory landscape is not static. Reporting groups must monitor key updates from bodies like the FCA and ESMA, digest new information and assess its impact promptly. Staff involved in the EMIR reporting process must be kept current on evolving requirements. Furthermore, creating broad awareness of the EMIR reporting data flow and its lifecycle across the organization, particularly among operations units that directly impact the data, is essential for maintaining compliance.
Final Thoughts
While EMIR reporting has always been a demanding process, the post-Refit environment introduces further challenges. It is vital for firms to embed a reporting and control solution that is robust enough to manage the complexities of data sourcing, aggregation and enrichment. Simultaneously, this solution must be agile enough to respond to regulatory feedback, industry trends and inevitable adjustments to the regulation.
The rewards for implementing such a solution extend beyond essential regulatory compliance. A strong EMIR control framework can significantly reduce operational risk and enhance data quality, providing a firm foundation for navigating the evolving regulatory terrain.
If you need support with your EMIR processes, contact SS&C to learn how we can help.
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