CSSF/CAA joint conference on EMIR Reporting

Published on 12 June 2023 Email this Share this on LinkedIn Share this on Facebook Communiqué CSSF/CAA joint conference on EMIR Reporting The joint CSSF-CAA conference on EMIR Reporting was held on 5, 6 and 7 June. Initially scheduled for 5 June only, due to high demand, the conference immediately had to be extended to 3 days with limited access to allow a larger number of entities to participate. In total, 160 institutions – including UCIs, banks, investment firms, corporate, insurance, association and law firms – were able to hear the considerations expressed by the CSSF and the CAA. On 5 June, a particular attention was paid to the insurance sector, given the participation of Mr Thierry Flamand, President of Executive Committee of the CAA. The conference covered three topics: Derivative market in Luxembourg What is next? EMIR Refit What is coming? New Data Quality supervision The structure of the Luxembourg derivative market was illustrated, sharing a few key considerations based on the CSSF’s supervisory experience. Key elements of EMIR Refit Reporting, which will enter into force on 29 April 2024 with a ‘big bang’, were presented clearly drawing the attention of the audience to what the entities should do before 29 April

1. The new approach for data quality supervision developed by ESMA and embraced by CSSF and CAA was explained, including a detailed description of the 19 data quality indicators developed by ESMA and implemented also by the CSSF. On EMIR Refit Reporting, the key messages delivered were: Ensure continuity across 29 April
2. Start preparing for these changes as soon as possible. Any failure to report accurately as from 29 April 2024 will be considered as a non-compliance with Article 9 of EMIR. On EMIR Data Quality, the key messages delivered were: EMIR data quality is a key priority for ESMA for the CSSF as well as for the CAA. Leverage on existing EMIR obligations to reduce the compliance effort for data quality: use or upgrade confirmation process use or improve reconciliation process Both counterparties shall agree on details to be reported, involving all stakeholders in the reporting value chain. Bad data quality is a signal of other issues within the organisation. Outsourcing EMIR reporting does not relieve an entity from its duties. The entity must have access to its data and understand it. The CAA asks its entities to make sure that their TR reporting is consistent with its Solvency 2 reporting and the rapport distinct of its auditors. The CSSF asks its entities to make sure that their TR reporting is consistent with the information shared in other regulatory reporting. 12 June 2023 EMIR Reporting: Prepare for the next challenges CSSF & CAA joint conference on EMIR Refit Reporting and EMIR Data Quality Supervision 5 June 2023 Studies and reports PDF (1.42Mb) Main topic: European Market Infrastructure Regulation (EMIR) EMIR Reporting: Prepare for the Next Challenges CSSF & CAA joint conference on EMIR Refit Reporting and EMIR Data Quality Supervision 5 June 2023 Agenda Derivative market in Luxembourg What is next? EMIR Refit What is coming? New Data Quality supervision 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 2 1 Derivative market in Luxembourg Key concepts around EMIR 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 3 EMIR Reporting: EMIR and ESMA EMIR is an EU Regulation, and together with its technical standards, is directly applicable in the EU. ESMA is the leading ESA on EMIR topics and plays a key role on EMIR Reporting, notably by : - Drafting the Regulatory/Implementing Technical Standards, considering also CPMI and ROC (for UTI and UPI) technical guidance. - Drafting specific report for the European Commission leveraging on EMIR data. - Ensuring supervisory convergence amongst NCAs. - Collaborating with non-EU jurisdictions. - Supervising trade repositories. CPMI: Committee Payments and Market Infrastructures ROC: Regulatory Oversight Committee, established in 2012 to coordinate and oversee a worldwide framework of legal entity identification (GLEIS). 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 4 EMIR Reporting: NCAs involved In Luxembourg, CSSF and CAA are the NCAs in charge of supervising the compliance with EMIR: - CAA for counterparties under its supervision. - CSSF for all other counterparties established in Luxembourg. CSSF is member of ESMA and in the EMIR related Standing Committees, because of that, it has a leading role in EMIR topics. Many other authorities and institutions (e.g. ESRB, SRB) as well as NCAs in other EU Member States receive Luxembourg EMIR data, depending e.g. on where the other counterparties are established, on the type of underlying or the currency of the derivative contract. 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 5 EMIR Reporting Number of Cpts Number of trades Notional in Bln EUR LU NCA 639’011 5’456 CSSF 1’848 97’603 1’022 CSSF Bank 62 170’800 828 CSSF FC Insurance 29 7’939 14 CAA NFC PSF / PI / EMI 4 1’775 1 CSSF FC Inv. Firms 4 18’884 0,4 CSSF Nature Type FC UCI 9’495 NFC NPS FC Source: EMIR reporting as of 30/12/2022 and CSSF data Undertakings Collective Investments Not Prudentially Supervised (e.g. Corporates) Bank Insurance Investment Firms Professionals Financial Sector / Payment Institutions / Electronic Money Institutions 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 6 Considerations related to the derivative market Data is king, but data models are poor Excessive regulation? No, reasonable reaction of legislators DQ issues affects how firms are viewed by authorities Derivative market structure in Luxembourg 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 7 Derivatives Transactions: Different views Several stakeholders intervene in the derivative value chain. Each of them sees its portion of what is true. It’s up to the counterparty to the derivative to ensure that the reported picture reflect the truth. 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 8 Data quality is only the visible part of larger issues Data Quality DQ is a key indicator of soundness of: IT systems, controls and processes; data models; and IT systems Data models overall governance. Controls and processes Governance 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 9 Data model: the key to extract value from data EMIR Data are still not organised. Processes not fully under control. EMIR obligations still managed in a siloapproach. 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 10 Excessive regulation? No, reasonable reaction of legislators no. of mandatory fields for TR reconciliation 200 180 160 140 120 100 80 60 40 20 0 TR reconciliation is currently based on few fields agreed between TRs. Reconciliation rate is still very poor despite 9 years of EMIR Reporting. EU legislator has decided to take action. currently as from 04.2024 as from 04.2026 (since 02.2014) 5 June 2023 total fields EMIR Reporting: Prepare for the Next Challenges With EMIR Refit Technical Standards TR reconciliation is set in law. 11 Data Quality: how firms are viewed by authorities More than 50 authorities and EU institutions look and use EMIR data. Each authority looks with its own perspective, therefore all fields are relevant. How firms look with Data Quality How firms look without Data Quality Source: https://scifi.stackexchange.com/questions/99497/what-was-the-inspiration-for-the-design-of-r2-d2 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 12 Luxembourg: Fragmented Derivative Market 12 000 LU counterparties 100% 90% 80% 70% 1 Mln outstanding derivative contracts 60% 50% 40% 10 000 Bln EUR notional outstanding 30% 20% 10% 0% 1 10 100 % of total outstanding 1000 10000 % of total notional The market is highly fragmented 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 13 Publications based on EMIR data Increasing number of publications and work based on EMIR data such, as: 5 June 2023 EMIR Reporting: Prepare for the Next Level 14 2 What next? EMIR Refit Reporting ‘Big bang’ on 29 April 2024 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 15 Focus on EMIR Refit Reporting EMIR Refit Reporting is based on 4 pillars as from 29 April
3. 5 June 2023 • End-to-end XML reporting (ISO20022) • Validation rules • Framework for mandatory delegation • Information to NCAs for significant reporting issues • New controls and feedback reports by Trade Repositories EMIR Reporting: Prepare for the Next Challenges 16 EMIR Refit Reporting messages End-to-end xml based reporting (no proprietary formats allowed) : All stakeholders access the same level of information, i.e. less transformations Structured data increases data quality 3 reporting tables: (i) Parties to the contract; (ii) contract details and (iii) collateral details Event based reporting (e.g. clearing / allocation) in addition to updated action types (e.g. revive). Transition period of 180 calendar days only for contracts that do not require any update or that mature during the period. New details or modified values to be reported (subsequent/prior UTI, collateralisation, counterparty data) – refer to guidelines UTI: Unique Trade Identifier 5 June 2023 EMIR Reporting: Prepare for the Next Challenges 17 EMIR Refit Reporting messages: some changes Field no. Field name Change 2.3 / 2.4 2.8 2.152 / 2.153 Prior / Subsequent position UTI UPI Event type / Event Date New Fields 2.1 / 3.10* 2.27 / 3.9 UTI (incl. new waterfall logic) Collateral portfolio code Special characters (i.e. :.-_) forbidden * Uncapitalised letters forbidden too 1.2 1.7 / 1.13* 2.2** 2.26 2.34 Report submitting entity ID Clearing threshold counterparty 1 & 2 Report tracking number Collateral portfolio indicator Master Agreement type Mandatory * Applies also to FC now ** If MIC in 2.41 Venue of execution belongs to a TV 1.3 Entity responsible for reporting For OTC trades: IFM for funds --- FC for NFC- as per 9