How to interpret the EMIR Reporting Broker ID Field

With all the focus on EMIR Refit, it is easy to forget that firms still have a day-to-day EMIR reporting obligation that they have to attend to!   

Earlier this year, ESMA made a useful and important update to its EMIR Q&A ‘Level 3’ guidance, which impacted the ‘Broker ID’ field.  This short article explores what that means for firms, and how Kaizen can help with ongoing regulatory changes.

Background

This is what the ‘Broker ID’ field in both ESMA and the FCA’s RTS for EMIR reporting currently says:

In the case a broker acts as intermediary for the reporting counterparty without becoming a counterparty himself, the reporting counterparty shall identify this broker by a unique code.

Despite being a reasonably straightforward field, the Q&A previously included wording (shown below) that threw open the interpretation of what a ‘Broker’ actually was under EMIR reporting, indicating that the Broker ID should always be populated, which was a somewhat controversial interpretation.  March’s update helps to clarify how firms should be populating this field.

Previous ESMA Q&A

TR Question 9(e)

If a broker is itself the counterparty (legal principal) to a trade, should it be reported in both the “broker” and “counterparty” fields?

TR Answer 9(e)

Yes

Latest ESMA Q&A

TR Question 9(e)

If a broker is itself the counterparty (legal principal) to a trade, should it be reported in both the “broker” and “counterparty” fields?

TR Answer 9(e)

No, when a broker is a counterparty to a derivative, it should report the derivative and identify itself as a counterparty. In line with the RTS on reporting and more particularly with regard to the details to be reported in the field 1.8, the broker is then not required to report its LEI in the field ’Broker ID’.

Sadly, the validation rules include no corresponding update to help firms adhere to this change, and so it is possible to make submissions to a trade repository, which will contradict the wording under TR Q9(e).  Such submissions fall under trap of being valid, but wrong.

How can Kaizen help me with this change?

Kaizen’s award winning Accuracy Testing is constantly being improved and updated in line with regulatory and industry changes.  With this in mind, we immediately amended our testing, so that for all Kaizen clients, we could now check that the Reporting Counterparty field and Broker ID field are no longer populated with the same value, in line with TR Q9(e).  This is a good example of where Kaizen’s assurance testing will capture ‘valid but wrong’ reporting scenarios, as the existing validation rules will not prevent firms from having the same LEI repeated in both the Reporting Counterparty and Broker ID field.

And finally, this change provides a useful opportunity to remind firms that even though some fields, such as the Broker ID, are listed as ‘optional’, regulators still very much expect them to ‘be populated if applicable’ to the derivative – which is something I have heard regulators and NCAs stress many times.  Where Kaizen sees important optional fields reported without a value, this is highlighted within the thorough results we provide, highlighting potential further ‘valid but wrong’ scenarios.

Conclusion

The Reporting Counterparty and Broker ID fields should never be populated with the same value, which may require some firms to amend their current EMIR reporting workflow, but is nonetheless a welcome clarification from ESMA for a field that will continue to be required under EMIR Refit.

• The EMIR Q&A can be found on ESMA’s website
• For help preparing for EMIR Refit or to discuss your EMIR reporting data quality with one of our regulatory experts, please contact us.