The European Markets Infrastructure Regulation (EMIR) REFIT standards are likely to require significant input to implement, according to Capco’s new paper, EMIR REFIT: Getting Technical.
The paper, which assesses the impact of EMIR reporting under the new technical standards for the reporting of OCT derivatives, believes ISO 20022 standards and critical data element methodology will be crucial components.
ESMA is proposing that the industry adopt a uniform harmonised approach to trade submission and that all OTC derivatives contracts be submitted in XML format under an ISO 20022 standardised template methodology.
However, the paper points out, that this could present disproportionate costs and operational burdens across the industry.
ISO 20022 is a general industry standard although as the paper says, it does not immediately translate to a universal single use message across domains.
Data elements can have multiple definitions across regimes depending on the firms reporting obligations globally and the user build architecture of individual member firms.
EMIR REFIT aims to develop technical standards on the quality and reporting obligations of derivatives data based on experience in implementing EMIR since 2012.
The original regulation covered clearing, reporting, risk mitigation, and margin and collateral exchange.
The final report on technical standards under the EMIR REFIT was published late last year. It set out a number of draft technical standards that have been submitted to the European Commission, and a proposed 18-month tor mid 2022 deadline.
As a result, Capco recommends firms start preparing in the first quarter, Attention should be given to additional budget requirements, time required for the project as well as the opportunities for data efficiency.
Capco also suggests that participants review current reporting and eligibility rules for EMIR and compare to the initial draft of the new rules.
“Consider current internal data models across all reporting jurisdictions and assess any potential reuse of data to allow efficiency savings,” the paper notes.
In addition, it advises participants to perform traceability analysis from the current reporting model to assess any gaps, risks, or dependencies ahead of the final consultation paper.
The success of the EMIR REFIT technical standards, according to Stephen McPherson, principal consultant at Capco and author of the paper, will be underpinned by the quality of data.
He believes the adoption of critical data element methodology, and the decision on whether the ISO 20022 message scheme will be mandated, are likely to be critical factors in its success — and the key determinant of the approach of impacted firms.
“Already concerns have been raised around how these can be adopted and whether they should be the solution for EMIR standardisation,” he adds. “These decisions will also have a significant bearing on counterparty and repository reconciliation and matching of fields.”
McPherson says: “Regardless of the final requirements, there is likely to be a high cost to impacted firms, substantial strategic and tactical delivery work to achieve compliance, and business readiness, necessary to deliver these changes across an already congested regulatory marketplace.”