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EMIR Refit: Whose neck is on the line?

The deadline for EMIR Refit compliance is fast approaching, and for a significant number of firms affected, there's still a lot to get done. For those who leave it too late, there are potential consequences, both for the firm and the individuals involved. So, who should be worried, and what can they do to overcome this? 

Carsten Kunkel

Head of Regulatory Center of Excellence, SimCorp

Well, first, let's look at which firms are affected by EMIR Refit. EMIR Refit applies to entities legally established in the EU that act as a counterparty in a derivatives trade. EU entities must comply with the EMIR obligation on any derivative transaction they enter into, whether or not the counterparty is an EU entity.  

The changes are vast and far-reaching, with firms needing to overhaul their current approach to EMIR. The requirements include a 60% increase of data points to be reported, 11 new derivative lifecycle events, the sourcing of a brand new data component - the Unique Product Identifier - and a necessity to report new collateral details. On top of this, the reporting format has been unified to ISO 20022 xml. Aside from the reporting aspect, firms are required to have increased control and oversight of all related processes - which calls into question how this works in a delegated reporting scenario.

Firms are required to have increased control and oversight of all related processes - which calls into question how this works in a delegated reporting scenario.

Carsten Kunkel, Head of Regulatory Center of Excellence, SimCorp

But let's cut to the chase - who ultimately holds the responsibility for the EMIR Refit reporting results? What are the repercussions for the firm and the teams accountable if deadlines are missed or inaccurate reports are filed?  

For the firm, this is clear cut: consequences can range from investigations, to greater regulatory scrutiny, to fines and, ultimately, to revocation of licences and permissions to do business. The scale of any penalties and sanctions is decided upon by the local National Competent Authority (NCA). No matter the result, any increased oversight from the NCA will negatively impact a firm's reputation. 

"I'm not worried, regulators are notoriously weak when it comes to imposing fines."  

Famous last words, perhaps? We're seeing greater use of power to make examples of firms that fall short of their requirements. In 2023, we saw the Financial Supervisory Authority fine Bank of Åland for defaults in the reporting of derivative contracts, which they relied on their clearing agent to produce - both a financial and reputational blow for the organization.  

For the individual, however, this can be much more impactful. Individual reputations are on the line from across the business. We're talking career damaging, life-altering implications, including the risk of criminal proceedings and ultimately imprisonment. This varies based on which role you hold in your organization, and spans Compliance Officers and Heads of Transaction Reporting, as well as reaching those responsible for regulatory change and IT.

Individual reputations are on the line from across the business. We're talking career damaging, life-altering implications, including the risk of criminal proceedings and ultimately imprisonment.

Carsten Kunkel, Head of Regulatory Center of Excellence, SimCorp

"But I delegate my reporting - doesn't this mean I'm off the hook?" Frankly, no. It is your responsibility to understand what's being reported, when, and how. Delegated reporting is a lot like sending your data through a black box and trusting what comes out the other side. No audit trail, no knowledge of the treatment of the data, no control over the process or systems used. Not to mention requests for changes joining the back of a long list of other firms' demands, making change painfully slow. Yet, your reputation is still on the line. And let's not forget the new backloading requirement - this becomes a much more complex issue when going down the delegated route.

Work life is made infinitely more difficult when mistakes are made, as senior management scramble to oversee more of the process. Demands for more frequent updates, emergency meetings on how to avoid future recurrences of misreporting, overall, more stress for the already time-constrained teams responsible for regulatory reporting.

Delegated reporting is a lot like sending your data through a black box and trusting what comes out the other side.

Carsten Kunkel, Head of Regulatory Center of Excellence, SimCorp

So how can this all be avoided?

Timely implementation of the EMIR Refit reporting regime, with all the right people, data, technology and processes is paramount. Also important that teams responsible for the changes are not working in isolation on this project either, there are many more regulatory regimes to contend with, as well as general organizational transformation projects to juggle. To help firms understand where they are in the EMIR Refit process, we’ve created a simple timeline. Our experience shows that the earlier firms make a decision on how they wish to tackle the new requirements, the better, as it leaves more time for a quality implementation that stands the test of time, mitigating the need for change after go-live. So, if you’re in the situation of your neck being on the line for EMIR Refit, it’s time for action.


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