The European Securities and Markets Authority (ESMA) published draft technical standards under the European Market Infrastructure Regulation (EMIR) REFIT which deals with requirements for financial counterparties and their obligations on timely and accurately reports for OTC derivatives contracts.
ESMA recommends alignment with international standards in particular those developed by CPMI-IOSCO on the definition, format and usage of key OTC derivatives data elements reported to trade repositories (TRs). These include the Unique Transaction Identifier (UTI), the Unique Product Identifier (UPI) and other critical data elements.
The regulator also proposes end to end reporting with XML schemas developed in line with ISO 20022 methodology used for both communication between the TRs and authorities (as is the case now), as well as for reporting from TR counterparties.
The regulator also suggests data quality harmonisation across TRs for data validation and data reconciliation processes, that occur at the TRs once derivatives are reported.
It also propose data quality harmonisation across trade repositories as well as standardised process for data access.
In addition, it is looking to simplify rules for extension of registration from the Securities Financing Transactions Regulation (SFTR) to EMIR.
The draft technical standards have been submitted to the European Commission, and the proposed timeline for implementation is 18 months from the date of their publication in the Official Journal.
In the meantime, ESMA will begin working on the guidelines on reporting under EMIR REFIT as well as on the technical documentation, including XML schemas and validation rules.
The European watchdog aims to provide the industry with the relevant guidance and documentation sufficiently ahead of the reporting start date to ensure a smooth transition to the reporting under the revised rules.
The purpose of REFIT is to address disproportionate compliance costs, transparency issues and insufficient access to clearing for certain counterparties. Its aim is to streamline the rules and reduce regulatory and administrative burdens where possible, especially for non-financial counterparts (NFCs), without compromising the regulatory goal of EMIR.