Regulation is increasing that’s for sure. From the FCA, via the EU, then across the global landscape of Net Zero, carbon offsetting, digital transactions, biometric ID and more, it never sleeps. So to stay in business, you need to stay on top of the rules coming down the track in various key markets.
Novatus Advisory (Novatus), the risk, regulation and ESG consultancy and technology solution provider, has launched its first research study investigating the impact of the upcoming EMIR REFIT rules from the perspective of 100 decision-makers for transaction reporting in the UK. The research assesses the concerns firms had regarding the implementation of the regulations, the specific challenges they faced and how they were addressing them.
1. Lack of preparedness
Many firms seem to be behind the curve when it comes to preparing for the new rules. While everyone surveyed has read the requirements, 21% are still unsure of what will be required in practice. A significant number currently have no action plan in place. Of those who intend to manage the reporting process themselves, 37% have considered the requirements but have no action plan, while 3% haven’t even started considering the requirements, meaning two in five had no plan in place.
This puts many firms at risk of non-compliance once the rules are in force, or of rushing implementation and getting it wrong. With only 56% thinking that 18 months is enough time for implementation, the report points to real concerns about readiness.
2. Complex technological challenges
The number of reporting fields under the revised regulation is increasing from 129 to 203, which brings with it the need to ensure a robust tech solution is in place to correctly reconcile, and enable accurate data consumption and reporting. The fact that firms will be required to use an automated XML reporting solution complying with ISO 20022 also adds to the technological complexity. The volume of new data fields and the scale of the tech build required were identified as the two largest challenges facing businesses.
3. Risk of remediation
If firms find they haven’t met the requirements and/or don’t have the technology in place (and fully tested) by the EU go-live date, there is a risk that they will spend a significant amount of time and money remediating issues after that. In addition, to the risk of enforcement action from the regulator.
The research shows that this is already the case under the existing EMIR rules. Since initial updates to the rules came into force in late 2017, 90% of respondents have had to review or assess how they report, with 76% still undertaking ongoing remediation.
4. The need for external support
It is evident that the majority of firms are turning to external partners for support with EMIR REFIT implementation and are adopting different approaches in this regard. From all our respondents, 59% intend to self-report, while 41% plan to delegate to third-parties.
Matthew Ranson, Partner and co-founder of Novatus comments:
“Due to the vast number of changes the regulation is bringing time is already tight for firms to be compliant. Remediation is clearly an issue that many respondents have faced under the current regime, and this is only set to become more of a problem if firms do not implement changes quickly. If firms are unprepared and don’t have technology in place, there is a real risk that remediation will be a considerable (and costly) long-term problem”.
Francis Stroudley, Director and Head of Transaction Reporting comments:
“The need for external support and guidance regarding the implementation of EMIR REFIT is clear. This not only points to a need for a much wider ecosystem of providers across EMIR REFIT, but our research also demonstrates that that many firms feel they don’t have the necessary expertise or headcount to deliver the changes brought about by the regulation.”
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