Top 6 Changes in EMIR Refit That You Need to Know

EMIR Refit

The European Commission has adopted the EMIR Refit Final Report on RTS (regulatory technical standards) and ITS (implementing technical standards). This revision is meant to align EMIR with global standards and improve data quality, as such there has been major changes introduced. If the European Parliament and Council agrees to the changes, the implementation period will start from the end of September 2022, resulting in a reporting start date of March 2024.

What are the major changes in the new EMIR Refit?

1. ISO20022 XML reporting

ISO 20022 is currently used for other regulatory reporting regimes and has been widely accepted in the financial industry.  ESMA will introduce the harmonised XML submissions for EMIR reporting as part of the global standardisation. A fully standardised format for reporting aims to eliminate the risk of discrepancies in data.

2. Unique Product Identifier (UPI)

ESMA has specified in ITS Article 6 that derivatives which are admitted to trading or traded on a trading venue or a systematic internaliser should be using an International Securities Identification Number (ISIN) code. The remaining derivatives should be identified using a Unique Product Identifier (UPI) code.

The Derivatives Service Bureau (DSB) Ltd has been designated as the service provider for the future UPI system. DSB will be the sole issuer of UPI codes and operator of the UPI reference data library.

A UPI will be assigned to an over-the-counter (OTC) derivatives product and used for identifying the product in transaction reporting data. This will enable authorities to aggregate data on OTC derivatives transactions by product or by any UPI reference data element. Such aggregation will facilitate the effective use of OTC trade reporting data, including helping authorities assess systemic risk and detect market abuse.

3. Unique Transaction Identifier (UTI)

In order to align with international standards, ESMA is adopting standards promoted by CPMI-IOSCO for defining the logic structure of Unique Trade Identifiers (UTIs). The introduction of these changes will enhance data harmonisation globally.

The change to the UTI generation waterfall model considers bilateral agreements as fallbacks. In a situation where there is no agreement in place, firms follow the UTI waterfall for generation of this identifier. There is a deadline set by ESMA where the counterparty generating the UTI shall communicate the UTI to the other counterparty timely, which is by 10:00 a.m. UTC on T+1 (ITS Article 7)

4. Legal Entity Identifier (LEI)

Moving forward, the renewal of LEIs will be validated only for the reporting counterparty and the entity responsible for reporting. This means lapsed LEIs are allowed for other counterparties. (ITS Article 8)

5. Revised reporting lifecycle events

The Action Type field alone is insufficient to describe the business event, so ESMA has introduced Event Type to provide more granularity about the type of business event triggering a given report. Here is the combination of Action Types and Event Types:

Source: ESMA Final Report Technical Standards on reporting, data quality, data access and registration of Trade Repositories under EMIR Refit

6. Changes to reportable fields

There are 89 new additional fields being introduced in EMIR Refit, bringing the total number of fields to 203.  Some of the fields have been removed, such as the Trading Capacity and Beneficiary ID fields which were found to provide little to no value.

A new field introduced is the Derivative Based on Crypto-assets, where counterparties are expected to indicate whether a security is based on a crypto-asset. This will allow ESMA to assess the trading volumes and risk of crypto-tokens which in turn will facilitate the development of more granular requirements in the future.

What will happen next?

The European Parliament and Council now have a three-month scrutiny period to raise objections, with the option of an additional three months. Assuming Parliament and Council keep to the three-month timeline, the technical standards can be expected to be published in the Official Journal mid-September.  

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