While the first European Market Infrastructure Regulation deadline passed roughly one year ago, the buy-side has been coping with a fresh batch of challenges in 2015.
The European Union created EMIR to enhance the stability of OTC derivatives markets in the region. The regulatory regime aims to enhance transparency and mitigate risk. After you have had a chance to catch up on this regulatory regime, let’s focus on the compliance challenges it is creating for buy-side firms in the new year.
“The regulatory regime aims to enhance transparency and mitigate risk.”
Changing reporting requirements
One place these institutions are encountering difficulty is keeping up with the new reporting requirements, according to Finextra. Starting in February 2014, EMIR obligated buy-side firms to report trade portfolio positions, HedgeWeek reported.
Then, in August 2014, fund managers faced new requirements, which involved them reporting on all collateral that has been exchanged for transactions with counterparties, as well as mark-to-market valuations on all outstanding exposures to these contract participants, according to the news source.
Unique trade identifiers
In addition to these reporting responsibilities, affected firms have been struggling with unique trade identifiers, which help single out individual trades for reporting purposes.
Since many had differing beliefs on how to create these UTIs, the European Securities and Markets Authority provided four different methods for generating the identifiers as part of guidance it issued in February 2015, Finextra reported. As industry participants and regulators work together to develop more effective compliance methods, increasingly efficient practices will likely appear.
Regardless, keeping up with EMIR reporting requirements – and also working with UTIs – will necessitate robust data management and high-quality information, the media outlet reported. Meeting these obligations could strain firms’ resources, as all systems involved in trading and settlement would need to send and or receive the proper data in a timely manner and in the pertinent formats.
To make matters worse, these pressures could intensify over the coming years if regulators desire information that is formatted properly and high in quality, the media outlet reported. As these supervisors learn from EMIR’s implementation, they may further polish their requirements in an effort to achieve these objectives.
Fund managers have stringent reporting requirements that obligate them to process substantial amounts of information, Tim Thornton, chief data officer of a global asset administrator, wrote in a recent HedgeWeek article.
While these buy-side firms have surmounted many of the original challenges that stemmed from implementing EMIR, errors still happen regularly, he emphasized. Amid these difficulties, regulators have stated they plan to crack down on buy-side firms submitting inaccurate data.
To keep up with regulations in the current environment, institutions need to make sure they have the right tools. Since the European Union implemented EMIR roughly one year ago and the regime is constantly changing, any solutions used to meet it must easily adapt to change in both the short – and long-term.
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