ANALYSIS: DTCC bullish on UK EMIR Refit after European success

The UK is in a good place ahead of European Market Infrastructure Regulation (EMIR) Refit go-live in September, according to the Depository Trust & Clearing Corporation (DTCC), pointing to the example of quick execution in the EU, good engagement from UK firms and a “busy” August of testing.

The new regulatory reporting changes under UK EMIR Refit are set to be implemented on September 30 following the launch of EU EMIR Refit on April 29.

US clearing body the DTCC told FOW that, just as it did for firms preparing for EU Refit, it has supported UK firms and seen good engagement from that group, particularly on testing, and expects a successful execution in the EU to lead to same result across the English Channel.

“To help firms prepare for EU Refit, we set up our testing environment roughly five months before go-live and saw testing really ramp up during the last two and a half months. As we look toward the autumn deadline for the UK Refit, so far, testing for the changes has been positive,” said the DTCC managing director of repository and derivatives services Syed Ali (pictured).

“We have seen good engagement from firms, and we are encouraging them to commence testing sooner rather than later. August is going to be a busy month from a testing perspective based on the feedback we are hearing from the industry.”

EU Refit went live in late April as the latest version of the regulation that first came into force in February 2014, marking the culmination of years of work and the latest milestone in the global roll-out of new reporting requirements. At the time, Kaizen director of EMIR reporting Tim Hartley said the industry had adapted slowly to the various implementations so current iterations were proving less troublesome than earlier versions.

That said, the EU update on regulatory reporting requirements caused some trepidation in the months leading up to go-live. In February, a panel of experts suggested that European regulators will not allow firms “a honeymoon period” to comply with reporting requirements, while in January, Kaizen’s Hartley said European firms looked likely “to be in different places come go-live”.

Ahead of the UK implementation, a Davies survey last week found 36% of UK firms had been penalised for regulatory compliance failures at least once between June 2023 and June 2024, while 62% of respondents said the challenge of keeping up with regulatory compliance requirements has “become more acute” in recent years.

Despite this, just over four months after go-live in the EU, the DTCC told FOW it was impressed by how European firms adapted to the regulatory changes and thinks this bodes well for UK Refit in late September.

“EU Refit was the largest regulatory reporting change that we have supported since EMIR went live in 2014. The industry has managed to achieve pre-go-live levels of acceptance rate within weeks, which is testament to how far the industry has come,” said the US clearing body's managing director.

“While DTCC played an active role in helping firms prepare, it's been a genuine team effort across the industry. We hosted almost 100 working groups and client sessions over the last year, bringing industry participants together to help a smooth go-live.”

Ali continued: “For the UK, there is one thing to be learned from the EU Refit implementation - test, test, test! The sooner firms start testing, the sooner they are able to identify and rectify any potential issues pre go-live.”

European derivatives trading has been buoyant this year, with Euronext’s milling wheat futures and Amsterdam Exchange (AEX) index options contracts among the top 10 traded lots in July, according to FOW data.

Last month, Eurex set an open interest record in foreign exchange (FX) futures in June 2024, rising 71% to €8.4 billion (£7.1bn) in value, while the German venue is also locked in a three-way battle with CME and ICE for market share in European short-term interest rates.

Speaking more widely on the intentions of EMIR Refit, Ali believes the two Refits are supporting regulatory transparency and harmonisation, particularly over systemic risk.

“The EU Refit has helped drive transparency by implementing additional fields which the regulators can use for exposure monitoring and managing of systemic risk,” said Ali. “The Refits also helped achieve greater harmonisation through the adoption of critical data elements by global regulators.”

In June, the UK Financial Conduct Authority (FCA) manager for market conduct and post-trade policy Carmel Deenmamode said firms need to be operationally ready for the new reporting standards before calling them to engage with the UK regulator to anticipate issues ahead of go-live.

The DTCC told FOW said regulators in the UK and EU have been supportive in making sure the key information is available to firms ahead of implementing the requisite regulatory changes.

“The European Securities and Markets Authority (ESMA) and the FCA have both delivered on their crucial roles in terms of making sure key information pertaining to the changes is made available and have both been very supportive and collaborative,” said Ali

“As firms work towards the September UK Refit deadline, it is worth bearing in mind the recent [July 12] changes published by the FCA in relation to business validation rules…These were widely anticipated, which is testament to the regulator’s active engagement with the industry.”

Ali continued: “While the DTCC is in a good position to incorporate all the requisite changes, firms will be working to a tight deadline. We will be supporting industry participants as always.”

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