With a no-deal Brexit scenario becoming increasingly possible, firms must be more than ever ready to ensure the continuity of their reporting. Here, we analyse the most important issues firms need to consider with respect to their EMIR and MiFIR reporting obligations in the case of a no-deal Brexit.
According to EMIR, EU counterparties must report their derivative transactions to an ESMA authorised Trade Repository (TR), while, under MiFIR, firms executing transactions in qualified financial instruments must report those transactions to an Approved Reporting Mechanism (ARM) or directly to their National Competent Authority (NCA). TRs are currently authorised and regulated by ESMA at an EU level (including UK-based TRs). ARMs are currently authorised and regulated directly by NCAs such as the FCA, AMF, Consob, CNMV, etc.
In the case of a no-deal Brexit, UK-based TRs and FCA-authorised ARMs will no longer qualify as EU TRs and EU ARMs, while EU-based TRs and ARMs will not qualify as UK TRs and ARMs.
A few UK-based TRs and ARMs have arranged to establish EU-based entities and obtained authorisation as EU-TRs by ESMA and EU-ARMs from EU NCAs. This will allow them to continue servicing their EU-based clientele in case of a no-deal Brexit.
Since the FCA has put in place local regimes that are equivalent to EMIR and MiFIR, UK-based firms need to continue their reporting of derivative transactions to an FCA-authorised TR and of their executed transactions on financial instruments that fall into the scope of FCA’s FIRDS version to an FCA-authorised ARM (see: https://www.fca.org.uk/markets/market-data-regimes/fca-firds-and-transaction-reporting).
The FCA expects that firms used to transaction reporting in the UK will see very little change to the underlying mechanics or logic of reporting, something that is key to achieving as smooth a transition as possible. Also, firms must be ready starting from day one. The FCA made it clear that there will be no transitional period or holiday following Brexit. The expectation is that all firms should continue to be compliant with their reporting requirements.
What firms need to consider for MiFIR
An EU firm currently reporting to a UK ARM will need to make arrangements in terms of integration and enter into a new agreement with an EU-based ARM, so as to be ready to immediately switch reporting to the EU ARM in case of a no-deal Brexit. Alternatively, the EU firm could consider reporting directly to its home NCA.
The opposite scenario applies to UK firms. A UK firm currently reporting to an EU ARM will need to make similar arrangements with a UK-based ARM, so as to be ready to immediately switch reporting to the UK ARM in case of a no-deal Brexit. Alternatively, the UK firm could decide to report directly to the FCA.
If an EU firm has a branch in the UK and the branch executes transactions in financial instruments falling under both the FCA FIRDS and ESMA FIRDS lists, the branch will likely have an obligation to report those transactions to either a UK ARM or directly to the FCA. Furthermore, the firm’s head office in the EU will have to report the same transaction to an EU ARM or its NCA. So, it is possible that an EU entity with a UK branch will have a dual reporting obligation.
The opposite scenario applies to UK firms. If a UK firm has a branch in the EU and the branch executes transactions in financial instruments falling under both the FCA FIRDS and ESMA FIRDS lists, the branch will likely have an obligation to report those transactions to an EU ARM or directly to the host NCA. At the same time, the firm’s head office in the UK will have to report the same transaction either to a UK ARM or directly to the FCA.
Moreover, the transmission of orders specified in Article 4 of Commission Delegated Regulation (EU) 2017/590 between UK and EEA firms would no longer be applicable following a no-deal Brexit since UK firms will not qualify as an EU reporting firm. As such, EU firms that currently have no obligation to report due to the transmission of orders to UK-based firms under the aforementioned regulation will be deemed to have executed a transaction and therefore obliged to report in a no-deal Brexit scenario.
Lastly, the reporting of UK clients will likely need to change due to fact that the UK would become a third country in a no-deal Brexit. More specifically, EU firms will need to change the identifier used for UK nationals (i.e. use of a passport number and then CONCAT instead of National Insurance numbers). Additionally, firms need to consider how they prioritise the nationality they report for multinational individuals where one of the nationalities is the UK (i.e. use the first EEA nationality, in alphabetical order, if there are more than one EEA nationalities and the same if there are more than one non-EEA nationalities).
What firms need to consider for EMIR
An EU firm currently reporting to a UK TR will need to make arrangements with an EU-based TR to be ready to immediately switch reporting to the EU TR in case of a no-deal Brexit.
The opposite scenario applies to UK firms. A UK firm currently reporting to an EU TR will need to make arrangements with a UK-based TR so as to be ready to immediately switch reporting to the UK TR in case of a no-deal Brexit.
FCA will become the UK authority responsible for the registration and ongoing supervision of TRs operating in the UK.
UK branches of third-country firms and UK branches of EU firms will not fall under the scope of the UK EMIR reporting regime. Hence, they are not expected to report under the onshore UK regime.
On the other hand, branches of established UK firms located outside the UK (e.g. EU branches) fall under the scope of the UK EMIR reporting regime and will be required to report details of their derivative transactions to an FCA-registered (or recognised) TR.
As always, MAP FinTech is at the forefront of developments and stands ready to assist regulated entities to meet their reporting needs with innovative, efficient and robust solutions.