Amid the season of Disney remakes, Brian Bollen analyses EMIR’s own ‘remake’, more aptly known as ‘REFIT’, and what the update will mean for the industry going forward
EMIR, EMIR on the wall, who is the fairest regulator of them all? The world of Walt Disney and European financial market regulation have little in common at first glance, or even second or third glance.
But the Disney family’s genealogical and geographical roots are allegedly in France, the country whose thirst for regulation gave global vocabulary the word ‘bureaucracy’.
The growing appetite for remaking and recasting successful movie titles bears at least some resemblance to the appetite of the European Union’s executive institutions for regularly revisiting, reviewing, and then refitting their own regulations.
For Disney, The Little Mermaid is next in line for the remake process. What could be the next remake in the EU regulatory landscape? One has to ask. For now, at least, the European Market Infrastructure Regulation (EMIR) is the subject of the day, laying down rules on over-the-counter derivatives, central counterparties and trade repositories.
The EU adopted EMIR in 2021 with several aims: to increase transparency in the over-the-counter derivatives markets, to mitigate credit risk, and to reduce operational risk.
DTCC summed up the current situation as regards to EMIR in a number of recent articles discussing the anticipated changes and also issued invitations to join its webinar on 29 September for an update on key rule changes under EMIR REFIT, including the move to ISO 20022 XML, adoption of the unique product identifier, changing reconciliation requirements, and more.
“The primary focus of the upcoming webinar is educational, preparing market participants for the size and scope of change, walking them through the changes and explaining the rules,” outlines Val Wotton, London-based managing director of product development and strategy, repository, and derivatives services at DTCC.
“There are a number of significant changes proposed in EMIR REFIT, including the large rise in the number of data fields that need to be completed (from 125 to 203), the requirement to translate historical records to the new standards over a six-month period, the introduction of the mandatory requirement to submit data in the ISO 20022 format (mirroring securities financing transaction regulation standards), and the brand new unique product identifier, which every firm will need to source and exchange on every transaction.
“The burden is being firmly placed on reporting counterparties to do the necessary upgrading; if you are in the derivatives markets you have to comply.”
The European Parliament’s anticipated approval of revised trade reporting rules under EMIR REFIT will set off an 18-month countdown to going live, DTCC notes in a recent paper on the industry preparations needed, before adding: “Will you be ready?”
Long experience in and around markets, and public sector initiatives, suggests that the answer is that some will be ‘readier’ than others, having taken the issue seriously and changed ethos, streamlined structure, and invested heavily in technology, (or taken a decision to outsource to firms), while the ‘unreadier’ ones have turned a blind eye.
The same experience also suggests that punting items further into the long grass will become increasingly attractive as go-live inches nearer and nearer. In December 2020, the European Securities and Markets Authority (ESMA) published the final technical standards under the EMIR REFIT.
A quick check of the basic arithmetic suggests that REFIT go-live will take place around February or March 2024.
This tallies with DTCC’s analysis. In its own recent paper on REFIT, DTCC noted that the European Securities and Markets Authority (ESMA) recently conducted its regulatory fitness and performance programme (REFIT) for EMIR.
The review found amendments to the regulation are necessary to address rising compliance costs and regulatory transparency issues.
The UK’s Financial Conduct Authority (FCA) has followed suit, recently completing its equivalent consultation for the revised UK EMIR Rules.
“While there is no expectation that the new EU and UK EMIR rules will come into force on the same date, the expected production implementation timeline for both is early 2024,” says DTCC.
‘Regulatory requirements will not go away’, is a statement that echoes across sectors and markets. However much some participants wish they would, the reality is that sometimes they take effect, stick around, and become tighter with the passage of time and the accumulation of hard-won experience.
Susan Yavari, senior regulatory policy adviser at the European Fund and Asset Management Association, highlights the question of access to UK central clearing counterparties (CCPs) as a significantly important element of future regulation in Europe.
She says: “We have had an extension of existing arrangements until June 2025, which provides welcome breathing space, but we need clarity on the clearing options available to us.
“We do not of course access CCPs directly, but we have a fiduciary duty to end-clients who need access to clearing at the lowest spreads, making the option to clear wherever the best clearing conditions are available fundamental.
“Transferring of positions is complex and needs to be implemented over a time period. You cannot do it overnight, at the flick of a switch. Ultimately, the decision to disallow UK CCPs access or not will come down to a political decision for agreement between the European Commission and the EU member states.”
Yavari also identifies as an area of interest in EMIR REFIT, the recognition of third-country CCPs, specifically referring to recent equivalence decisions relating to China, India, and Malaysia.
“The process is long and complex and a lot of exemptions are currently in place, due to the slow equivalence process,” she comments.
When considering his thoughts for this piece on EMIR, and the wider considerations for current regulation, Shaun Murray, CEO of Margin Reform, affirms: “Regulations continue to evolve.”
He adds: “In June 2023, we see the cessation of the exemption that pension funds have had for mandatory clearing.
“As with all regulatory projects you want to give yourself a full year to consider your strategy and how you will meet the requirements.”
In conclusion, when asked what the industry can expect of technology infrastructure development to aid the current regulatory backdrop, Murray concludes: “Technology and data continues to move at a phenomenal pace.
“Keeping up with it is one thing, knowing how to interpret it and how to better utilise it, to make the most of the advantages that it brings, is something else.”
