EMIR Refit, time is ticking, will you be ready?

Published: 19th April 2023

29th of April 2024 has been set as the European Union (EU) go-live date and the 18-month transition period for firms to implement EMIR Refit changes to meet their regulatory obligations has already started (almost a year away now). The FCA has issued a policy statement joint with the Bank of England including the final amendments to the Technical Standards and the new rules for Trade Repositories stating that the new United Kingdom (UK) rules will be applicable from the 30 September 2024 (and the headache continues).

Market participants have a lot to take on and consider, however in this edition we specifically analyse the changes to the Action Type fields and discuss the introduction of Event Types.

Action type is a mandatory field specifying whether a given report creates, modifies, corrects, terminates etc. a record pertaining to the trade in question. It is safe to say that updating the action types will bring another set of challenges to market participants as they will have to amend existing reporting logics to include new and remove redundant values.

Despite the updates in the Action Type field values, counterparties having the obligation to report transactions will need to ensure that the values are reported in the new 4-character format. Taking a closer look at the new values, some considerations are;

• Action type REVI will be used to re-open derivatives cancelled using the action type EROR or terminated using the value TERM. REVI can also be used after the value POSC has been reported erroneously.
• Two separate reports are required for margin/collateral and valuation update
• MODI can only be used for modifications of the details of the derivative and not for corrections to erroneous reporting.

What about Event Types with EMIR 3.0?

As if Action Type updates were not enough, ESMA introduced 11 Event Types aiming to increase transparency on the business event being triggered and to ensure the appropriate lifecycle events are being reported. This, by the way, brings the total number of action/event type scenarios to 34 – take note for business event mappings and reporting logic amendments!

Take a look at some examples for the action/event type scenarios:

• ‘Terminate’ (TERM) should be used with the Event Type ‘Inclusion in Position’ to indicate the termination or the modification of previously reported trades. This, however, should be agreed by both counterparties or continue to report in the same way at trade level.
• Where a derivative has been reported and subsequently cleared, Action Type ‘Terminate’ and Event Type ‘Clearing’ should reflect the clearing exercise and reporting of new derivatives resulting from Clearing, should be reported with the action type ‘New’ and event type ‘Clearing.
• ‘Compression’ has been removed and will now be replaced by combining the Action Type ‘Modify’ and Event Type ‘Post Trade Risk Reduction’ (PTRR). A PTRR ID will be generated and will be used to link trades.
• Collateral Update was not further needed as the collateral fields ‘Collateral Portfolio Indicator’ and ‘Collateral Portfolio Code’ could be updated with the Action Type ‘Modify’. ‘Margin Update’ (MARU) has now been added in the reportable Action Types aligning the requirement to SFTR reporting for Collateral.

Regulatory requirements can be similar across jurisdictions. CFTC Re-write is live since the 5th of December and in the changes firms had to take into consideration, included updates on Action and Event Types. For those who report to CFTC it will be easier to implement these changes for EMIR Refit as they should be able to leverage tested approaches to meet their obligations despite the divergence in the format. For those who do not report to CFTC a bit more work is required.

Introducing event types will surely bring another set of challenges which will require a significant amount of time and effort to implement – think more of sweat and tears. Here’s the key things to consider;

1. The action and event type updates will bring the total number of reportable fields to 203 – which means that firms will need to ensure that they have conducted extensive analysis of the gaps between existing and new fields to ensure accurate reporting as well as considering existing data quality issues.
2. Counterparties are required now to report action type values under a new format. How easy is it to do so? Will they be operationally ready in time for go-live?
3. Operational complexity to populate appropriately the new fields and mapping them within existing systems and reporting logics.
4. Additional costs in managing and training resources as well as prioritising change and allocate additional resources to ensure the firms meet regulatory obligations.

As you can see there is lots of complexity just on Action Type and Event Type and not a lot of time to do it with resources and budgets being pulled in different directions. This is just one aspect of the EMIR Refit to be considered. There are others that will be just as challenging, which we will cover next time.

If you need help, First Derivative can help you get it done. Contact us today.

Katerina Saba Senior Consultant Katerina Saba LinkedIn profile