In 2018, the Central Bank conducted a review on the data reported by parties who entered into derivative trades, to ascertain their compliance with EMIR. This briefing note summarises the Central Bank’s key findings and lists the recommendations as set out in its publication addressed to relevant firms on 20 February 2019. Firms should review the recommendations and take action to comply.
Under the European Market Infrastructure Regulation (EMIR) and the related technical standards and guidance issued by the European Securities and Markets Authority (ESMA), counterparties to derivative trades (a Counterparty) are obliged to report data concerning derivative trades to a Trade Repository (TR).
Last year, the Central Bank of Ireland, Ireland’s competent authority under EMIR, undertook data quality checks on reported EMIR data for a cross-section of Counterparties.
The Central Bank’s key findings focus on four issues. We outline each issue below and list the Central Bank’s recommendations.
The Central Bank found instances where Counterparties with delegated reporting arrangements were not taking appropriate steps to ensure compliance with EMIR.
This is of concern as the delegating Counterparty remains responsible for EMIR reporting requirements and therefore should take appropriate steps to ensure that reports made to a TR are fully EMIR compliant.
- A Counterparty availing of a delegated reporting service should ensure it receives regular reporting from the delegate, to include details of TR Rejection Reports. This requirement should be included in any delegated reporting agreement entered into by a Counterparty.
- Counterparties should reconcile data reported to the TR by its delegate with its own internal systems to ensure that all relevant trading has been reported.
- Counterparties should ensure that remedial action is undertaken to address shortfalls and non-compliance with EMIR requirements.
- Counterparties should regularly review TR Rejection Reports, to ensure that:
- All trade submissions are successfully reported to a TR
- Revised correct data submissions are made on a timely basis, and
- Remedial action is taken to eliminate rejection reports in the future
2. Completeness and Accuracy of Trade Reporting
The Central Bank outlined the following regarding the completeness and accuracy of trade reporting:
- Financial Counterparties (FCs) and Non-Financial Counterparties (NFCs) were failing to report daily valuation updates
- FCs and NFCs were also failing to report collateral received and posted, and
- A significant number of expired derivative trades / positions were appearing on TR Trade State Reports; leading to unnecessary supervisory engagement.
- Counterparties should regularly review the completeness and accuracy of their reports to TRs, to ensure that all trade submissions to TRs are complete and accurate
- FCs and NFCs should submit daily valuations for all outstanding trades / positions
- FCs and NFCs should submit collateral data for all outstanding trades / positions
- Counterparties should pay particular attention to ensure that:
- Where a trade / position has a maturity date the ‘Maturity Date’ field is populated
- Where a trade / position is terminated early, the Counterparties should submit an early termination message to the TR
- Where a Trade is compressed, the relevant compression message should be submitted to the TR
- Where a derivative contract does not have a maturity date due to the nature of the derivative, and the maturity date field cannot be populated, the Counterparty sends the relevant message to the TR closing the derivative contract immediately when the contract is closed out. The Central Bank draws your attention to TR Question 34 (Contracts with no maturity) of the EMIR Q&A in this regard
3. Legal Entity Identifier
The Central Bank highlights that a Legal Entity Identifier (LEI) should be included in reports to TRs in order to appropriately identify Counterparties.
- Counterparties should share details of their LEI with any entity with which it trades or to which it has delegated reporting.
- All reviews carried out by the Counterparty or its reporting delegate of TR data should confirm that the Counterparty is correctly identified with its LEI.
- Counterparties should renew LEIs annually. Lapsed LEIs are invalid for reporting purposes. Entities offering delegated reporting services are recommended to monitor the renewal date for a clients’ LEIs and to notify the client accordingly.
4. Unique Trade Identifier
Counterparties must agree on the contents of a trade report before submitting the report to a TR. Additionally, each derivative contract must be known and identified by all relevant parties under a global Unique Trade Identifier (UTI) endorsed by ESMA or, in the absence thereof, a unique trade ID/code agreed by the Counterparties.
- Counterparties should ensure that a UTI, communicated to all relevant parties in advance of the trade being reported to a TR, is applied to individual trades. A Counterparty must be in a position to explain how it ensures the UTI is unique.
- Where responsibility for UTI generation is delegated to another entity, the delegating Counterparty must ensure it is advised of the UTI in a timely manner. The Counterparty must be aware of how it can be deemed unique.
The feedback issued by the Central Bank serves as a reminder to all parties to derivative trades of their reporting obligations under EMIR. The Central Bank recommends that firms include compliance with EMIR reporting as a standing agenda item for all board meetings.
The Central Bank will follow up with Counterparties in breach of EMIR and it warns that failure to comply with EMIR constitutes a prescribed contravention and may result in supervisory or enforcement action.