It is now two years since EMIR reporting started, on 12th February 2014.From that day, derivatives trades and life-cycle events had to be reported to an authorised Trade Repository (TR), within T+1. There were many uncertainties and open questions leading up to the go live, culminating in ESMA issuing a new version of the EMIR questions and answers document the night before, on the 11th February. Accompanying the trade reporting go live was the start of other rules under EMIR, related to threshold calculation for non financial counterparties and risk management rules such as portfolio reconciliation.
The data submission formats have had to be revised since go live, with the introduction of “Level 1” and “Level 2” validations over the subsequent years. A more major overhaul of the fields is also due with the proposed new Regulatory Technical Standards from ESMA, likely to come into force towards the end of the year. Even these leave some open questions for those in commodities and energy. These issues have led to low reconciliation rates between the two reported sides of trades, making the data less useful to regulators. The chances are therefore that further changes will be required.
The milestone was the first time that the commodities and energy trading sector had been required to undertake such reporting, and saw the start of the sectors move into “big compliance”. This trend has continued, currently with REMIT reporting for those in gas and power, whose 7th April deadline this year is causing a great deal of work. There will be more reporting work to come, with EMIR changes, MiFID II reporting as well as SFTR. All of these rules pile on the reporting requirements, each of which is likely to be “refined” later.
The reporting stream of the various regulations often gets a significant focus within market participants. This should not detract from the other facets of the rules, including anti abuse rules such as MAR and REMIT, risk management, and most importantly rules around clearing, margining and capital, including EMIR, MIFID II, CRD IV and CRR.
While meeting the reporting rules does require significant work, they are simply a mechanism to support the main rule objectives: avoidance of systemic risk and outlawing of abuse. It is those facets that are the key to the rules, and de prioritising them in favour of reporting projects is likely to lead to difficulties. It is thus important for market participants to accept that “big compliance” is here to stay, and adopt a holistic integrated approach to compliance and regulation.