ANALYSIS: UK firms rise to challenge of latest reporting upgrade

British firms have adapted well to the latest UK regulatory reporting rules, drawing on lessons from the equivalent European rules that took effect in April, an expert has suggested.

A little over a week after the UK EMIR Refit regulation took effect on September 30, regulated firms have performed slightly better than they did after the introduction of the EU EMIR Refit rules in late April, according to the director of EMIR Reporting at Kaizen, a regulatory reporting firm.

Tim Hartley said he expected to see acceptance and rejection rates, which track reports where everything is accepted first time, to increase from about 75% on day one to above 90% in the first week.

“That’s what we saw for EU EMIR and that’s what I expected to see for UK EMIR especially as firms have taken economies of scale from the EU EMIR.”

But Hartley said that one week after implementation British firms have exceeded the European adoption rate, with about 98% of UK submissions now being accepted.

The European Market Infrastructure Regulation (EMIR) Refit rules, which took effect on April 29, increased the number of reporting fields to 203 from the 129 mandated by the first version of the regulation that took effect in early 2014. The British equivalent rules go one further and require 204 fields in total.

But, despite the strong starts, there is still work to be done on both sets of regulation, said Hartley: “A lot of firms are still working on their day-two book of work for EU EMIR. With EU EMIR Refit, they’ve done a good job of getting trades in, but the challenge is finding the things that are wrong.”

He added: “When a trade gets submitted, you’ve met the validation rules, which is great, so you’ve formatted in the right way but is the data right? Does it reflect your firm and your derivatives in the right way? That is a much harder question.”

Most UK firms trade in Europe and vice versa so many of the firms that complied with the European regulation also had to fall in line behind the UK reforms. Luckily the reporting requirements are similar.

Hartley said: “Firms are still fixing things from EU EMIR but that is positive because there are a lot of lessons that can be learned from EU EMIR and applied to UK EMIR. As firms move towards the end of the year, they will be looking to do the same thing with UK EMIR, that is, does the data represent their firm in the right way?”

The parallel implementations are complicated by the fact that both regulations include a six month window for firms to convert legacy contracts to the new reporting formats.

Hartley said: “The EU and the UK are the same in that they have this window in which they must update legacy contracts from the old style to the new style, and the period for the EU ends at the end of October.”

The Kaizen director said about 75% of European legacy derivatives have so far been updated, meaning there is approximately 25% of derivatives that still to be switched to the new format in the next three weeks. “If I were a compliance officer, I’d be getting a bit nervous about that,” said Hartley.

At the same time, the process for legacy positions is starting for UK firms so they now have to update their legacy derivatives to the new reporting standards before the end of March.

The similarity between the two rules is a mitigating factor but the overlap of the two regulations does present capacity challenges, Hartley said.

“That the EU and UK implementations are happening in parallel is a tough ask on resources. Currently the difference between the two regulations is small but the timing of their implementations does cause some complications,” Hartley said. “What you report for each one is very similar but there is a resourcing problem for firms in making sure that both regimes are fully up-to-date.”

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