SUMMARY OF EMIR REFIT
EMIR (European Market Infrastructure Regulation) was first introduced in July 2012, now from the 24th April 2024 EMIR Refit (regulatory fitness and performance programme) revised rules will apply.
The EMIR Refit is one element of the European Comission’s “Better Regulation” agenda.
EMIR was originally an EU regulation introduced to increase transparency and reduce risk through standardisation in financial markets. Similarly, following Brexit UK EMIR (September 2024) is the UK’s on-shored version of EMIR and more information can be found at the FCA.
What is changing?
In summary, there are updates to reporting obligations, tighter and more enhanced standardisation controls. THe main areas this will apply are OTC derivative products, mitigation techniques, and reporting obligations. With regards to the LEI, financial institutions will be required to liaise with their counterparties in order to ensure all LEIs are currently up to date.
The overall major updates will include:
The number of reporting fields will increase from 129 to 203.
Format of Data Transmission will update to the ISO 20022-XML format
Under EMIR, mandatory regulatory reports on derivative contracts (including futures, options, swaps, forward rate agreements and other financial instruments) traded by EU counterparties must be submitted via a Trade Repository approved by the relevant authority (ESMA or the FCA, UK).
These reports will undergo quality checks and analysis by regulators to ensure compliance and in order to identify systemic risk. The use of the LEI plays its role in increasing transparency and reducing risk by making entity and counterparty data more accessible, standardised and open.
ISO 17442
The LEI is a global ISO standards (17442) and each reporting counterparty shall be identified by way of a 20 digit Legal Entity Identifier (LEI). The EMIR Refit will apply stricter rules to data quality, with an added duty to keep LEIs ‘up to date’. This emphasises the importance of maintaining an active LEI. Previously many organisations have been trading on Lapsed LEIs.
Article 208 of the ESMA Guidelines for reporting under EMIR published in October 2023, states:
“According to the Article 3 of the ITS on reporting, the ISO 17442 Legal Entity Identifier (LEI) code should be used to identify a broking entity, a CCP, a clearing member, a counterparty which is a legal entity, a report submitting entity, an entity responsible for reporting, and a post-trade risk reduction service provider.”
Article 211 emphasises for accuracy the LEI be kept up to date (renewed):
“In order to reduce reporting issues due to lapsed LEI, the LEI code of the counterparty 1 and the entity responsible for reporting should be, for the purpose of reporting any new derivative or any modification, duly renewed and maintained according to the terms of any of the endorsed LOUs (Local Operating Units) of the Global Legal Entity Identifier System.”
WHAT TO DO
Should you be operating within a financial institution which falls under the EMIR refit, please ensure your LEIs are all maintained, active and managed on a single dashboard which has multiple user friendly features such as system alerts, lapsing notifications, watchlist tools and a consolidation feature.
For example, a useful watchlist tool will allow you to keep an eye and monitor your counterparties LEIs to ensure they also, are up to date which will ease the monitoring element of counterparty LEIs.
If you would like to discuss your EMIR Refit readiness with regards to your LEIs, and your counterparties LEIs please contact us here.
