The incoming EMIR Refit regulation will increase sell-side and asset managers’ reporting requirements to a level where submitting new data fields, combinations of actions and events could cause significant delays and run the risk of fines, according to a new report – EMIR Refit: Navigating the mandatory changes – from Auciti and sponsored by Broadridge Financial Solutions.
Acuiti surveyed regulatory reporting executives at 40 sell-side firms on their preparations for EMIR Refit and experiences with other reporting regulations.
One of the main concerns is that the EMIR Refit will put additional pressure on resources and challenge their ability to comply.
In particular, the research found 69% of firms were expecting serious challenges when building up their matching, reconciliation and exception management capabilities.
All respondents also envisioned some level of challenge in correcting errors and resubmissions.
Fin addition they are expecting Unique Transaction Identifier implementation to be complicated, with pairing and sharing highlighted as a particular pain point.
Other challenges include ambiguity on how to interpret some new fields, such as for lifecycle events, is heightening the risk of breaks between counterparties
“Regulatory reporting regimes have long been a slog to implement for firms, creating lots of potential cost with little to gain in competitive edge,” says Ross Lancaster, head of research at Acuiti. “EMIR Refit looks set to be no different, with compliance preparations still hindered by a lack of clarity on how the regulation will fit with other jurisdictions’ frameworks,
He adds, “Nevertheless, there is no alternative to upgrading or replacing systems for compliance. Firms will be well served by increasing their analytical capabilities to continuously assess what causes inevitable reporting errors and how to adjust processes accordingly. This can improve internal functionality while also minimising the risk of fines.”
Hugh Daly, Broadridge’s general manager responsible for regulatory transaction reporting solutions, says, “Given the complexity and scope of reporting requirement changes that will impact industry participants over the next two years, firms face significant operational challenges in updating their systems to comply.
“This opens the door to innovation, with the opportunity to improve how reporting systems function from a more strategic, multi-jurisdictional or multi-regional perspective.”
The EMIR Refit is intended to better align EU derivatives reporting with global standards and improve the quality of data that regulators use to supervise financial markets.
The report notes that firms will have to adapt to these new rules at the same time as other jurisdictions also introduce new reporting standards. This will lead to an exceptionally busy period for institutions as they upgrade multiple systems to comply.
These new requirements across jurisdictions are expected to start going live from late 2022. They will take in the US Commodity Futures Trading Commission’s (CFTC) rewrite, as well as Australian Securities and Investments Commission (ASIC), Hong Kong Monetary Authority (HKMA), Japan Financial Services Authority (JFSA) and Monetary Authority of Singapore (MAS) reporting regulations.
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