The FCA has published a statement that will hopefully provide some comfort to firms worried about the impact a hard Brexit will have on their EMIR trade reporting – should there actually be a hard Brexit on 31 October. Although it stresses the need for accurate data, the FCA acknowledges that mid-week changes of this magnitude will be challenging and it promises to adopt a “proportionate and pragmatic” approach – particularly where firms have robust systems and the data reported is accurate. (If you’re not sure the data you have reported under EMIR is accurate, perhaps this is a good time to contact us for a quality assurance check.)
FCA-registered Trade Repositories (TRs) are required to ensure the migration of all outstanding trades (and historic data) for UK counterparties, so, in theory, it should be a seamless process for firms to transfer reporting to an FCA registered TR. However, because it’s a mid-week change, the chances are that it won’t be an entirely seamless! The FCA has therefore made some sensible concessions to the T+1 reporting requirement and has stated:
- We expect all UK reporting counterparties to have reported the details of all derivative transactions concluded, terminated and/or modified on 1, 2 and 3 November 2019 to an FCA registered TR by no later than 4 November 2019
- UK reporting counterparties must also ensure that any details of their derivative transactions concluded, terminated or modified on 30 and 31 October 2019 that cannot be reported by the point of exit are back-reported to an FCA registered TR by no later than 4 November 2019.
Counterparties within scope of ‘UK EMIR’
The FCA has also stated that: “UK branches of third-country firms (including branches of firms from EU27 countries after Brexit) are not in scope of the UK EMIR reporting regime and so do not have to report under the onshored UK regime” Whilst this removes one element of potential branch level dual reporting, the FCA also states that branches of UK established firms outside the UK are within scope of the UK EMIR reporting regime.
The reporting of new and outstanding trades under ‘UK EMIR’
The FCA states that all new derivative trades entered into by UK counterparties on or after 11.00pm on exit day are in scope of the UK EMIR reporting regime and are required to be reported to an FCA-registered, or recognised, TR. In addition, all outstanding derivative trades entered into by UK counterparties on or after 16 August 2012, need to be held in an FCA-registered, or recognised, TR on exit day. So any firm believing that they no longer need to worry about the completeness and accuracy of their previous reporting are sadly mistaken. The UK authorities will have access to this data and they will expect it to be correct.
Inter TR Reconciliation
At least in the short term there will be no inter-TR reconciliation in the UK regime! However, the FCA recognises the role this reconciliation plays in ensuring the quality of the data and will reconsider this issue with UK TRs at a future date.
Will this all work?
Yes, but probably not perfectly. Of course, we are still unsure whether there will be a hard Brexit and, if there is one, whether it will be on 31 October 2019. So there are still plenty of ‘unknowns’.
Of course there shouldn’t be any ‘unknowns’ about the quality of your EMIR trade reports. We expect the FCA to become far more intrusive in ensuring the quality of reports under UK EMIR. If you’re not sure your EMIR reports will meet this scrutiny, please contact us as this is why we here at Kaizen exist – our assurance services can tell you how good or bad your reporting is, identify your issues and get you quickly on a path to good quality reporting.
Read the statement on the FCA website.
If you need more information about reporting after Brexit, please read David’s Brexit White Paper.