EMIR trade reporting: Starter's orders

With the European Securities and Markets Authority (ESMA) having finally authorised the first trade repositories under the European Market Infrastructure Regulation (EMIR), the race to implement trade reporting is now well and truly on! To be clear, as of the 12th February all derivatives trades (both exchange traded and over the counter) falling under the jurisdiction of EMIR will have to be reported to one of ESMA’s recognised trade repositories. Many firms, having anticipated yet another slip to the implementation deadline, will find meeting the deadline challenging to say the least.  This is particularly true given the inclusion of exchange traded derivatives (ETDs), as it had been expected that these would be exempt from the first phase of implementation. In light of this, it seems that Christmas will be cancelled for many IT teams who will now need to spend the festive season struggling to get their solutions over the line ahead of the deadline.

Of course, you may be planning to delegate your reporting to a third party such as your custodian, assuming that this will mean that there is little work for you to do. Unfortunately, this is not the case. If you haven’t already begun to do so, you should certainly be considering the following:

• Although the act of trade reporting can be delegated, the legal responsibility to ensure the accuracy of the data submitted cannot. You will therefore need to have processes in place that enable you to efficiently verify the accuracy of reports submitted on your behalf.  The Financial Conduct Authority (FCA) has already started to review firms’ compliance with EMIR in terms of the business conduct regulations already in place and will be checking trade reporting in line with their delegated responsibility under the directive.  In the statement titled ’FCA supervisory priorities arising from EMIR’ (28th October 2013) the FCA states that areas of focus will include: “counterparties’ responses to the new requirements for trade reporting, including establishing connectivity or appropriate delegated reporting arrangements, internal systems to ensure the accuracy of reports, and acquisition of Legal Entity Identifiers (LEIs).”
  
• Have you applied for your LEIs? You will need one for each fund that trades, and your delegated partner will need these to trade report on your behalf.

• If you would like to view or modify your details and / or reports at the trade repository itself, you will also need to apply for direct membership, even if your reporting will be done via your delegated partner.  Due to the number of firms who will now be rushing to apply, you would be well advised to do this sooner rather than later.  Even if you are using a 3rd party with whom you have an existing relationship for reporting, the on-boarding process may take some time as not all details required for trade reporting are readily available.

The important message here is that even if you choose to delegate your trade reporting, you may still struggle to meet the February 2014 deadline. However you plan to meet the trade reporting obligation, becoming compliant is a mammoth task and should not be underestimated. Firms now have only 3 months to get agreements in place, exchange and set up all the necessary data, and to review their procedures to ensure that they will be able to efficiently meet their regulatory responsibilities. The starting pistol has been fired and the race to comply is underway; firms that do not act fast to implement robust reporting solutions will fall behind their competitors and risk encountering the wrath of the regulators.