For a number of different reasons, some market participants decide that the most efficient way for them to execute their EMIR reporting obligation is to delegate their reporting to either their counterparty to the trade or to a third party specialist reporting firm. Whilst this can alleviate some of the back office overhead and insulate the participant from the ever developing regulatory framework and build effort, nevertheless it is an accepted truism that you can delegate the act of reporting but you can’t delegate the responsibility. To put it crudely, regardless of whether you report directly or delegate, if you are counterparty to the trade you remain on the hook with your National Competent Authority.

Although never explicitly stated, when EMIR went live in Feb 2014 there was a soft start, an understanding that the process was new and it would take time to bed in. Fast forward to November 2023 and an investment fund was fined €192,000 by the Central Bank of Ireland for breach of EMIR article 9(1). The fund was delegating its reporting. In the words of Seána Cunningham, Director of Enforcement and Anti-Money Laundering at the Central Bank,

“Firms must have appropriate oversight of data reporting from Board level down, including where data reporting is delegated or outsourced. The delegation of reporting obligations must be appropriately managed in order to avoid confusion between the delegates as to their respective reporting responsibilities.”

Whilst your NCA might understand that incorrect reporting will occasionally happen it will be an aggravating factor if you are unable to demonstrate robust oversight on what has been reported on your behalf. With REFIT, ESMA has also established guidelines for firms to develop and evidence a framework for identification and notification of errors and omissions to their NCA. It is important to understand whether your reporting provider is undertaking this on your behalf and whether any such reporting is systematically visible to you.

Your primary consideration should be the level of information you will get from the reporting provider, this can vary from a full data set to much more limited MIS. In my view, there is still no substitute for taking a direct feed from the TR so that you can see in our books and records the information that is being provided to your regulator. We offer a Non-Reporting Entity profile which provides participants with a low cost, read-only access to do exactly this, enabling you to triangulate your reconciliation between you, your reporting provider and your TR.

With less than 2 months until REFIT go-live, testing rates among the REGIS-TR community remain around 30%. One of the reasons for and/or consequences of this is that we might see an increase in delegation. Delegating to your counterparty could seem like an effective way of ensuring optimum rates for pairing and matching as the reports are submitted by the same entity, simply mirroring the trade details. However, I urge caution here. High pairing and matching rates when both sides of the trade have been reported by the same counterparty is no guarantee of data quality. There are a number of specialist firms who offer independent data quality assurance checks. Compared to the potential cost of mis-reporting, this is money well spent.

All things considered, you will still face operational overheads to monitor what has been reported on your behalf and to be able to demonstrate a robust oversight process. You will need a dedicated person looking at this on a daily basis, as well as having a mechanism in place to ensure data quality regardless of reconciliation status. For some firms this will be almost as onerous and we may see a move back to direct reporting once the dust finally settles, post REFIT.

John Kernan, CEO, REGIS-TR UK

If you have any questions concerning delegation, our Non-Reporting Entity profile or REFIT more generally, please contact our relationship management team.