Sail through the divergent regulations seamlessly with Virtusa
Senior Director - BFS Risk & Compliance
European Securities and Market Authority (ESMA) came out with the guidelines and technical documentation on reporting under European Market Infrastructure Regulations (EMIR) regulatory fitness and performance program (Refit) in December 2022. The improved guidelines offer amendments to the regulation as a necessary means to address rising compliance costs and regulatory transparency issues. While financial counterparties (FC) and non-financial counterparties (NFCs) have already been reporting for EMIR, EMIR Refit aims to reduce systemic risks prevailing in the financial system and strengthen the macro-financial system further. In this blog, we will shed light upon some of the critical changes that business entities in scope cannot ignore and how they can strategically maneuver these changes while overcoming the challenges that might feel overwhelming.
With the implementation of EMIR Refit, a unique transaction identifier (UTI) and unique product identifier (UPI) will be introduced, including a few other critical data elements (CDEs) to harmonize the international standards. This amendment would also help all the entities reporting in non-EU jurisdictions. Furthermore, EMIR Refit will facilitate the analysis at the supervisory level and address the data quality issues. For example, ISO 20022 XML is suggested for reporting from the FC/NFCs to help validate data and recon at the trade repository (TR) end. An event type (e.g., credit event, corporate event, etc.) will also be introduced to supplement the action type (new, modify, terminate, etc.) in providing more granularity for business events in a trade life cycle for triggering a report. Furthermore, the transition window of six months, when all the open trades would need to be upgraded to the new technical standards, would need sourcing the new data elements for these trades. Additionally, the entities must align with the counterparties to ensure that recon issues do not crop at inter and intra-TR levels.
As mentioned above, like any other regulation, EMIR Refit intends to reduce systemic risk in the financial system. However, it does bring some discomfort for the entities in scope. The exercise at hand for FC/NFC starts with interpreting the regulation, running a gap analysis, embracing business process changes, and understanding system-level changes. That being said, understanding and complying with the ever-changing regulations in a complex banking and financial diaspora landscape can be complicated for all the FC/NFCs in scope. But if we focus only on the reporting aspect of EMIR Refit, there are various salient points to understand.
The EMIR Refit aims to amend and simplify the EMIR to address disproportionate compliance costs, transparency issues, and insufficient access to clearing for certain counterparties by incorporating some of the following critical changes:
Are you planning to implement EMIR Refit?
Here are some of the key considerations that we think you should know before you plan to implement EMIR Refit. For an FC/NFC looking to address the EMIR Refit regulatory requirements would have the following key considerations. These considerations revolve around the criteria of submitting data into the TR and closing end-of-day reports from the TR or how to run a valuation or collateral reporting, and more.
Valuation reporting should be done at the end of each day
Pre and post-haircut collateral reporting
Figure 1: Key considerations for FCs/NFCs looking to address the EMIR Refit regulatory requirements
Virtusa’s trade report repository (TRR) can solve the EMIR and EMIR Refit challenges by automating daily transaction reports to an ESMA-licensed TR. We have an enrichment of product codes, counterparty LEIs, and UTI generation. Our TRR monitors and manages rejections and late reporting via an intuitive dashboard to ensure efficient and frictionless reporting, reducing reporting expenses and overall cost of ownership and improving efficiency. The TRR also has a flexible integration option supporting the pull or push of multiple file formats such as CSV and XML. It also provides highly secure, advanced data encryption, including an encrypted and segregated file upload system. The solution also includes file management for access to trade repository-submitted EMIR reports. That’s not all; our professional services team with deep regulatory knowledge supports reporting success to help you leverage compliance with EMIR Refit.
A GARP-certified FRM professional, Rakesh brings over two decades of experience in business and IT consulting across banking and capital markets. His focus area is risk and regulatory compliance. At Virtusa, Rakesh handles digital technology-enabled financial risk and compliance offerings.
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