Technical changes at a glance
EU Regulation No. 2019/834 revising the European Market Infrastructure Regulation was published in the Official Journal of the European Union on May 28, 2019 and formally entered into force shortly thereafter. It is thus intended to create facilitations in the application of EMIR, but without changing the core requirements of the regulation. The main changes in EMIR REFIT are as follows:
- changes to the reporting template
- Instead of 129 fields, 203 fields to be reported in the future (41 fields with significant changes)
- Differentiation between Action Type and Event Type
- Representation of lifecycle events
- Complex transactions or combinations are mapped into single transactions
- Changes in the UTI waterfall model
- changes are presented at item level when reported
- change in IFRS13 valuation reporting
- collateral reporting is broken down
- change to the new XML reporting format ISO 20022
- in case of missing reports or significant misreporting, a report to the supervisory authority is mandatory
What is to be considered with the changes?
Due to the new changes, special attention must be paid to the following points:
- 12 new “Event Types” must be reported in combination with “Action Types”; not all Action and Event Types can be combined.
- mapping of complex transactions or combinations into single transactions.
- representation of lifecycle events.
- change in the UTI waterfall model (see UTI).
- messages transmitted to an EU TR must comply with the XML message standard ISO 20022.
- responses from EU TR to transmitted messages must comply with the XML standard ISO 20022.
- implementation of a unique product identifier (UPI) to enable aggregation of derivatives data on a global level.
- mandatory generation of a Unique Transaction Identifier in accordance with ISO 23897.
- reporting of Prior UTI or PTRR is mandatory to identify closed and reopened contracts (e.g. clearing or compression).
- 203 fields (instead of 129 previously) are to be reported in the future.
- 41 fields with significant change.
- extension of a margin table with 29 new fields.
- reporting on a daily basis.
- valuation method to be reported according to the method used to determine the valuation.
- mandatory reporting to supervisor in case of significant misreporting, or failure to report.
- TRs must provide a set of minimum end-of-day reports (analogous to SFTR) on the basis of which the operational reconciliation process is to be supported.
For the content of the message fields, the combination of the message “Action Types” and the associated “Event Types” requires a complex implementation of the logic as well as the identification of the correct trigger events. The new UTI waterfall model provides for bilateral agreement only as a fall-back solution. Agreements that have already been concluded must be revised or renewed.
During the transition to the new XML reporting format ISO 20022, the old formats will be integrated into the new standards. The export file from the reporting tool and the interface to the trade repository have to be adapted to the ISO 20022 XML standard as well as the reporting for open transactions (Q1/25 – 6 months deadline).
For the implementation of a UPI, the connection to an appropriate provider has to be made and a correct matching with ISIN (Tandem Reporting ISIN/UTI) has to be ensured.
Timely generation and provision of the Unique Transaction Identifier (UTI) is essential (both counterparties must logically use the same UTI). Reporting a Prior UTI and a Position UTI in case of post-trade events (to link corresponding trades) will require complex logics.
Modification of existing reporting fields must be done according to CDE guidelines. A 1:1 mapping of the new fields from the IT systems is mostly not possible and corresponding adjustments will require complex logics.
The breakdown of collateral reporting requires timely data provision on a daily basis and the delivery of daily updated market data and valuations.
Valuation adjustments such as Credit Valuation Adjustments (CVA) and Debit Valuation Adjustments (DVA) can also be included in the fair value calculation under IFRS 13. However, ESMA considers it most appropriate to exclude them from the value of the contract.
In the absence of reports or in the case of false reports, violations must be identified automatically so that they can be actively reported.
A new or extended internal reconciliation process is required (including prior coordination with counterparties). Internal written procedures to ensure resolution of reconciliation issues must be implemented.