Europe: Why Are Firms Currently Focusing on Derivatives Post Trade Reporting?

Mar 13 2024

Deficiencies in compliance with derivatives post trade reporting rules have recently triggered regulator fines. Fin-FSA in Finland fined a pension fund €90K and the Central Bank of Ireland imposed the first fine on an investment fund, €192K. Although the fines are reasonably modest, they have sharpened industry focus on this issue.

Firms are also reviewing their processes in this area because of EMIR Refit reforms in both the EU and UK. These come into force on, respectively, 29 April and 30 September (although, thankfully, there is a six-month transition period in both regimes in relation to trades that have outstanding liabilities at the respective in force dates and need to be re-reported under the new rules).

Demonstrating its desire to work with industry to get the Refit changes right, the UK FCA (together with the Bank of England) will publish a Q&A to provide guidance that will be applicable during the UK transition period. At present, draft guidance is out for consultation with feedback requested by 28 March.

Both in the UK and EU, the reforms will introduce notable operational changes, including a new standardised format for reports with data fields rising from 129 to 203 in the EU, and 204 in the UK. And, whilst the UK and EU changes are broadly aligned, attention will need to be paid to the differences that do exist. There are also changes to obligations to notify the authorities of reporting errors and omissions, though the requirement to do so is more prescriptive under the EU regime.

The Refit changes are likely to necessitate system upgrades and cost allocation for implementation. Firms have been through similar changes before, of course, but this time the hoops are a little different with many firms having to contend with two slightly different EMIR regimes.