Navigating EMIR Refit 2024: changes, challenges, and an upcoming deadline

Jerome Lussan in collaboration with Charlotte Hide

The EMIR Refit timeline

You might be wondering what the European Market Infrastructure Regulation (EMIR) Refit is, and the motivations behind it? Regulation (EU) No 2019/834 of the European Parliament and of the Council of May 20, 2019, is what we know as “EMIR Refit”, which was initially put forward with the intention of streamlining and reducing the burden of EMIR on derivatives counterparties.

Whilst usually our laws surrounding financial regulation prioritise the avoidance of negative behaviours and aim to limit the abuse of our financial systems for personal gain, EMIR Refit includes a more positive ethical focus. It is drafted to ensure that associated EU laws complete their objectives with absolute minimum cost to help citizens and businesses. In the UK, the Financial Conduct Authority (FCA) now has this responsibility post-Brexit.

To understand the implications of the EMIR Refit changes happening in 2024, we must consider the changes spanning from the first EMIR enforcement in 2012.

Key goals in 2012 included:

  • Improved market transparency
  • Better mitigation of systematic risk
  • Prevention of market abuse

The 2012 rules aimed to regulate the OTC (Over The Counter) derivatives market in the EU, which at the time included the UK. Following the EMIR Refit timeline, EMIR was officially added into the Refit program in 2016, with the EU Commission suggesting in 2017 that EMIR be updated to match the evolving nature of the regulatory landscape (by focusing on improving data quality).

In 2022 and 2023, several big updates were published under EMIR Refit, including the EU releasing new Implementing Technical Standards and Regulatory Technical standards. As Brexit came into force in January 2020, in the UK the FCA separately published a similar policy statement (PS23/2). Both changes were made with the goal of harmonised regulation.

What does the EMIR Refit 2024 change?

The key question to address now, is what is the specific change we are dealing with in 2024 and what does it mean?

The biggest change will be the move from CVS submissions to XML only. Reporting formats are being unified to the ISO 20022 XML schema to improve reporting quality, through the belief that this will eliminate discrepancies between reporting parties and repositories resulting from inconsistent data. Therefore, we should be left with cleaner data and less, if not no, variation of file formats. This is being done in the EU by the 29th of April 2024 and in the UK by 30th of September 2024, so do not miss those dates for your calendar.

In addition to improving the quality of current reports, the 2024 changes within EMIR Refit also include a significant increase of the number of reportable fields: from 129 to 203 in the EU and to 204 in the UK. In the UK these reportable fields are defined as items of data that are required to be reported to the FCA.

How will the UK be affected compared to the EU?

The increasing disparity between financial regulation in the UK versus the EU is rooted in a difference in philosophy particularly in the never-ending wake of Brexit. The UK prefers to replace and or vary from the EU laws that it was previously governed by, with the potential aim to prioritise competitiveness and growth. This does not make life for compliance officers any easier in an already heavy environment.

EMIR Refit 2024 represents the first significant divergence between the EU EMIR and UK EMIR reporting requirements. The changes applicable to the EU versus the UK appear to recognise the increasing divergence between the UK and EU’s approaches to financial regulation. In this regard, it is a sign of things to come and may risk adding costs for operations wishing to operate both in the UK and the EU.

As noted above at this point the key differences are only that the changes will apply on two different dates, and that the regimes will have slightly different reporting requirements. However, this EMIR Refit 2024 change should still unify regulated reporting systems overall and will therefore bring about more global consistency.

The differences in reporting requirements are highly specific and will therefore require attention to detail. The UK will have one more reportable field compared to the EU. Note that 13 fields will have been removed. Furthermore, about 100 fields have also been updated including the following details:

  • Name
  • Description
  • Acceptable value
  • All the above and others

What could the consequences be?

Firms based in the UK should keep in mind that the FCA has free range to implement fines following failures in EMIR reporting, which makes it difficult to gauge the level of damage that incorrect reporting could have on the firm’s future.

In October 2017 the FCA fined Merrill Lynch a whopping £34.5 million for ‘failing to report 68.5 million exchange-traded derivative transactions between 12 February 2014 and 6 February 2016.’[1] This period between when the lack of reporting took place and the fine itself, shows how time passing is no protector when it comes to failure in meeting EMIR reporting requirements.

This example is also the ‘first enforcement action in the UK against a firm for failing to report details of trading in exchange-traded derivatives under EMIR’, with more recent consequences being as severe. With EMIR regulations no longer being a foreign concept, firms should without fail be equipped and able to meet new requirements and will be fined just as harshly.

How should UK firms prepare for the deadline?

With the new rules going live on the 30th of September 2024 in the UK, firms must have found a solution prior to the deadline. Considering the ethical intentions of EMIR Refit, this is a change that should be prioritised for the benefit of both companies and the public. Due to the complexities of the minute changes, firms should start preparing for these ‘new reporting requirements as soon as possible’[2].

Here’s how firms could prepare:

Stay Informed: Regularly monitor updates from the UK Financial Conduct Authority (FCA), the Bank of England, and other relevant regulatory bodies.

Assess Impact: Conduct a thorough impact assessment to understand how new regulations or changes to existing ones affect your firm.

Training and Awareness: Ensure that relevant staff within your organisation are aware of the upcoming changes and understand their impact on your operations.

Update Systems and Processes: Based on the impact assessment, update your reporting systems, processes, and internal controls to align with the new requirements.

Consult and Collaborate: Consider engaging with legal advisors, consultants, or industry groups to share best practices and gain insights into how others are navigating similar changes.

Challenging months are coming ahead, and firms should take into account both the existing framework and any forthcoming changes. Guidance can evolve as deadlines approach, therefore, maintain a routine of monitoring for any updates, additional guidance, or clarifications from the FCA and other regulatory bodies to ensure ongoing compliance.

How can Leo help you do this?

All of the ways to approach implementing EMIR Refit 2024 require heavy administrative tasks and a huge amount of adaptation in pre-existing reporting systems. This is exactly where Leo can help, removing the administrative burden of compliance’s evolving nature.

Some of these features include:

  • Creating tasks and adding reminders on the calendar which can converge in Outlook;
  • Creating registers or remediation lists allocated to staff with the option of uploading evidence of things done;
  • Creating oversight reports to cover new compliance needs specific to your firm.

These features are all completely configurable to ensure all relevant areas are given the necessary oversight.

To learn more about Leo click on the link below.

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[2] Journal of Financial Compliance, Winter 2023

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