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With the deadlines approaching for the implementation of the changes to EMIR reporting in the EU (April 29, 2024) and the UK (September 30, 2024), it is crucial to understand these new requirements fully.
Based on the new EU and UK standards, there has been an increased data quality reconciliation requirement.
In this context, reconciliation refers to the process by which Trade Repositoriess (TRs) validate that both sides of a derivative transaction have been reported with identical information by each Reporting Entity.
While the TRs will be responsible for performing this task, the ultimate responsibility for a complete and accurate reporting lies with the Reporting Entities. This entails ensuring that trades are eventually paired and matched (as described in the definitions and example below). Reporting Entities must receive the outcomes of the inter/intra TR reconciliation exercise and resolve any unpaired or unmatched transactions to ensure the completeness and accuracy of their reporting.
Pairing is the process followed by the TRs to identify and pair the two sides of the same derivative transaction using the fields UTI, Counterparty 1 and Counterparty 2.
Matching is the process followed by the TRs after the successful pairing process to match specific fields (e.g. field Direction) of the trade that must be common between both sides of the same derivative transaction.
Example:
| Transaction side | UTI | Counterparty 1 | Counterparty 2 | Direction |
|---|---|---|---|---|
| 1 | UTI123 | LEI of counterparty 1 | LEI of counterparty 2 | BYER = buyer |
| 2 | UTI123 | LEI of counterparty 2 | LEI of counterparty 1 | SLLR = seller |
EMIR REFIT has brought about a notable escalation in the complexity of data quality reconciliation requirements. This is primarily attributed to a significant increase in the number of reconcilable fields, which has risen from 80 to 148. Additionally, the introduction of more stringent matching tolerances has contributed to this heightened complexity.
Below you can find some examples of fields that have become reconcilable:
- UPI (from the start date)
- Valuation fields (2 years after the start date)
- PTRR (Post-Trade-Risk-Reduction) (from the start date)
- Further Sub-product (2 years after the start date)
Furthermore, the reconciliation process will be conducted in two phases. First, upon the reporting start date, 87 fields will be subject to reconciliation. Subsequently, another 61 reconcilable fields will come into effect two (2) years after the commencement of the reporting obligation.
At MAP FinTech, we offer a range of tools to assist reporting entities in meeting this requirement effectively. To start off, we align with ESMA’s approach, which promotes delegation. Doing so ensures that the most common reporting fields are consistently reported between counterparties. For the remaining counterparty-specific fields, we employ various techniques to populate them based on the initial information provided automatically.
In the case of delegation, we provide several options for the other counterparty (the delegator) to receive the reported files and the results of the inter/intra TR reconciliation exercise in a user-friendly and easily understandable format. These formats could include CSV files instead of XML, and tables and graphs that can be conveniently accessed through the Polaris portal. This ensures a seamless and efficient process for all parties involved.
Furthermore, even in cases where delegation is not applicable or for any other reason not utilised by the counterparties, our reporting platform allows the reporting entity to facilitate in an efficient way the same reports used by its counterparty, thereby enabling both parties to work with identical information for the purpose of reconciliation.
At MAP FinTech, we have developed these procedures and tools with the specific aim of helping companies meet their reconciliation obligations effectively. Our goal is to ensure that they can maintain continuous compliance with these increased data quality reconciliation requirements.
Contact our team of experts today and achieve a smooth transition to the changes in reporting requirements brought on by EMIR REFIT.