EMIR requires counterparties to derivative transactions to provide information on their transactions to trade repositories. In 2015, the Central Bank of Ireland also required non-financial counterparties to submit returns to it using a reporting template where they had significant derivative positions. The Central Bank's feedback on the reporting is out – are you a top reporter?
EMIR (Regulation 648/2012 on OTC derivatives central counterparties and trade repositories) was introduced to increase transparency in respect of derivatives. A derivative is a contract between two or more parties whose value is based on an underlying financial asset, index or security.
EMIR requires counterparties to derivative contracts to report such transactions to trade repositories. A trade repository is an entity that centrally collects and maintains records of derivative contracts.
The Central Bank of Ireland's ("Central Bank") review of a selection of the EMIR reporting submitted by non-financial counterparties highlights some key takeaways for those preparing future returns.
While the quality of EMIR reporting is improving, the Central Bank will continue to monitor the data submitted by counterparties. The recommendations below, as well as guidance issued by the European Securities and Markets Authority ("ESMA"), will be assessed when considering the quality of the data reported.
Delegated reporting
A number of counterparties appoint delegates to complete their EMIR reporting. However, the Central Bank has identified a failure by counterparties to ensure that their EMIR obligations are discharged correctly. Regular feedback from delegates should be obtained to ensure compliance with EMIR.
Accurate reporting
Trade repositories reject EMIR reports if the reporting standards are not met. Rejection reports should be reviewed so that remedial action can be taken and all relevant transactions reported.
LEIs
Counterparties with legal entity identifiers ("LEI"s) should ensure that they are renewed on an annual basis. Lapsed LEIs will not be deemed valid for EMIR reporting.
UTIs
Counterparties should ensure that a unique trade identifier ("UTI") is applied to individual trades and that the UTI is communicated to all parties.
Conclusion
The Central Bank's feedback should assist counterparties in meeting their EMIR reporting obligations. EMIR was introduced in a bid to reduce systemic counterparty and operational risk in derivative markets. Complete, accurate and reliable reporting is key if top grades are to be achieved by counterparties and the purpose of EMIR is to be met.
It is important for counterparties to remember that a failure to
report derivative positions to their trade repository, by the end
of the working day following a transaction, is a prescribed
contravention under the Central Bank's regime and could lead to
enforcement action being taken by the Central Bank.
For more information, please contact a member of our Investment Funds team.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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