Qomply
Qomply, a regulatory technology company that has processed billions of transaction reports for more than 50 investment firms, sits firmly on the front line as it assists clients with their EMIR reporting journeys. Jenna Lomax spoke to the company’s Michelle Zak to find out how the industry is responding
From your viewpoint, what are some of the biggest concerns around EMIR Refit?
Investment firms are still challenged by the expectations of regulators regarding the correct population of a few fields and counterparties’ requirements to provide data.
The UK Financial Conduct Authority (FCA), with assistance from the Bank of England, is establishing a UK EMIR Reporting Industry Engagement Group which is expected to publish guidance on aspects of the UK EMIR reporting regime. Therefore, it appears there will be more clarification as we move forward.
Putting field-level expectations aside, a remaining concern for global firms is the staggered go-live dates between the UK and EU. The EMIR Refit will come into force in the UK on 30 September 2024, meaning the go-live will occur five months after Europe’s EMIR introduction.
While larger firms may have the infrastructural tolerance to support the legacy EMIR report alongside the new EMIR Refit reports, some firms may struggle.
Additionally, the sheer size of the reports is daunting as the number of fields have significantly increased. The validation and standardisation in a report may present certain obstacles for firms with legacy technologies, as will the extraction of data from IT systems.
Coupled with finding resources that can help with the task of interpreting regulations and implementing the requirements, budgets may be stretched.
Firms now have in-house transaction reporting resources that can be dispatched, thereby reducing costs.
That is correct as many regulatory reporting teams are cross-functional and may be involved in the implementation of various regimes, including the Markets in Financial Instruments Regulation (MiFIR) and EMIR. While the familiarity of multiple reporting regimes may aid the understanding of requirements, there are some distinct differences between seemingly similar fields and the expectations of required data. Therefore, it is important that teams are aware of the differences when navigating the details.
The report tracking number (RTN) in EMIR should not be considered a one-to-one link with the trading venue transaction identification code (TVTIC) field in MiFID, nor should reusing the personal identifiers in EMIR that were used to populate fields in MiFID. Some aspects of trade modelling are also different. For example, FX swaps are traded as two forwards, therefore two separate transactions are concluded on the venue. In the subsequent MiFIR transaction report, FX swaps are represented in two separate transaction reports (one for the near leg, the other for the far leg) and are linked by a complex trade ID. In EMIR, they are represented as one transaction. These little details are worth noting.
Is regulatory divergence a major concern when considering EMIR Refit?
All in all, the EMIR Refit between the EU and UK is mostly in line. Apart from the staggered go-live dates, there are only a few small differences between the UK and EU versions. For example, the recognition of the index TONAR (the Tokyo Overnight Average Rate), also known as TONA, as a benchmark for Japanese yen interest rates.
Under the FCA’s version of the EMIR Refit changes, the index TONA is deemed a valid entry in fields related to derivatives trading. In contrast to the FCA’s policy, the EU version of the EMIR Refit changes does not recognise TONA as a valid entry in the same fields. There is also an extra field in the UK’s version of EMIR Refit. However, these changes are small in comparison to the staggered go-live dates between the EU and UK.
The bottom line is that most firms recognise that regulatory divergence is here to stay. The UK must be able to act independently of other jurisdictions and ensure its financial market competitiveness.
We should expect to see changes going forward as the UK looks to refine aspects of other reporting regimes such as MiFIR.
Operational and regulatory costs have skyrocketed in the last eight to 10 years. How has this affected firms?
The 2022 Thomson Reuters’ Cost of Compliance Report noted the “volume and implementation of regulatory change, a lack of budget and resources, and the availability of skilled resources” as amongst their top concerns. The availability of skilled resources to assist in tackling regulatory obligations are especially concerning.
This has led to an industry trend towards digital transformation. Qomply sits comfortably in this space.
To this end, Qomply has seen a distinct increase in the number of firms seeking to outsource their entire transaction reporting operation. My team has worked to provide scalable and affordable solutions for firms of varying sizes. By bringing Quality Assurance and Reconciliation to Qomply’s cloud-based technology, firms remove the need for manual processes, specialist knowledge, and inefficient practices.
With constrained budgets, firms are seeking cost-savings across operations, regulatory reporting and oversight.
Some firms are opting for a scalable approach towards outsourcing. First, they may utilise our cloud solutions for just Quality Assurance, then they move towards streamlining processes such as sending trades directly to the regulator themselves, rather than use an intermediary. Then, they may automate the entire process. It really depends upon their transaction volume, in-house capabilities and their strategic plan.
