EMIR Regulation: Data quality Report

A major follow-up report on the oversight of data quality under the European Market Infrastructure Regulation (EMIR) was published by the European Securities and Markets Authority (ESMA) on April 11, 2024. This report provides an update on how Member State competent authorities (NCAs), ESMA, and trade repositories are doing in resolving the issues that were brought up during ESMA's initial 2019 peer review. The priority still lies in improving the quality of data submitted under EMIR, which is essential for making well-informed decisions about associated risks.

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EMIR Regulation: ESMA on TCCC

The enforcement of EMIR Regulations has spotlighted DCCC’s challenges, emphasising the critical importance of regulatory compliance in the financial sector. This pivotal case underscores the stringent standards set by the European Union, urging financial entities to exhibit proactive adherence.

GrandAlessandro Micagni

EMIR Data Quality: Insights from the Follow-up Report

In order to evaluate the supervisory procedures of five National Competent Authorities (NCAs) with respect to the caliber of data submitted under the European Market Infrastructure Regulation (EMIR), the European Securities and Markets Authority (ESMA) carried out a peer assessment. This review indicated the NCAs' differing levels of supervisory maturity and provided a list of steps to fix any flaws that were found. Later on, in tandem with the introduction of new supervisory convergence instruments like the European Union Strategic Supervisory Priorities (USSP), ESMA launched an EU-wide initiative to improve the quality of EMIR data. In addition, an outcome-focused, data-driven, and risk-based approach to data quality monitoring was implemented by ESMA and the NCAs in 2022.

Key findings:

• Peer assessment found that the five NCAs evaluated (CY, DE, FR, IE, NL) have varying degrees of supervisory maturity with respect to the quality of EMIR data.

• To enhance the quality of EMIR data, ESMA established an EU-wide strategy that is supplemented by national actions carried out by NCAs.

• ESMA and NCAs worked together on a number of projects, such as the introduction of more detailed data quality checks and dashboards.

• There have been noticeable improvements in the quality of EMIR data as a result of the coordinated efforts at the national and horizontal levels.

Revisiting the EMIR Regulation: Background of Data

This report provides an update on the steps the European Securities and Markets Authority (ESMA) and National Competent Authorities (NCAs) have taken to improve the quality of data submitted under the European Market Infrastructure Regulation (EMIR) since the 2019 peer review. Launched in reaction to the financial crisis, EMIR requires derivative transactions to be reported to Trade Repositories (TRs), and regulatory monitoring requires access to this data. The 2019 peer review revealed that NCAs' supervisory maturity in relation to the quality of EMIR data varied, leading to both immediate and long-term suggestions for improvement. This follow-up was started by the Board of Supervisors (BoS) in order to evaluate the progress made. To find advancements, ESMA conducted desk-based exercises. ESMA's emphasis on NCA coordination and prompting in addition to targeted supervisory measures highlights the continued commitment to improving the quality of EMIR data at the national and EU levels.

Market Data Quality: A Strategic Focus for the Union

One important tool that ESMA uses to motivate and coordinate intense supervisory actions among National Competent Authorities (NCAs) on important regulatory matters is the Union Strategic Supervisory Priorities (USSPs). These priorities, which are periodically determined by ESMA, give NCAs a framework for coordinating their work plans and evaluating their annual success. By the end of 2020, market data quality became recognized as a USSP, with an emphasis on improving the quality of data published under the EMIR dataset. Understanding the critical role that data quality plays in regulatory and supervisory activities, ESMA made market data quality a top priority for the entire Union until the end of 2023, highlighting the necessity for ongoing focus in the supervisory agenda.

• In order to guarantee sustained improvements in the quality of market data, NCAs and ESMA have joined forces to undertake structural reforms under the USSP.

• NCAs have concentrated on creating uniform frameworks and methods for evaluating and exchanging data quality, as well as on creating supervisory instruments to glean useful information from submitted data.

• Cyprus (CY) disclosed proactive steps, such as desk-based investigation and outreach to counterparties (CPs) to correct misreported data, among the NCAs that were the focus of follow-up. In 2021–2022, CY carried out a comprehensive desk-based study, with a focus on the appropriate application of Legal Entity Identifiers (LEIs) in derivative reporting.

EMIR Data Reporting: Regulatory Updates from Cyprus and Germany

Germany (DE) and Cyprus (CY) have shown initiative in raising the caliber of data submitted in accordance with the European Market Infrastructure Regulation (EMIR). Both nations have made efforts to increase data accuracy and guarantee compliance with EMIR reporting requirements through a variety of programs and activities. The regulatory modifications and supervisory measures that CY and DE have implemented to support EMIR data reporting standards are highlighted in this section.

Main Regulatory Changes:

• Cyprus (CY):

• By asking three counterparties (CPs) for representations, CY addressed deficiencies in the quality of EMIR reporting. CY also found instances of EMIR reporting obligations being broken, which resulted in CPs being reminded of their reporting responsibilities.

• A number of metrics, including pairing, matching, notional, valuation, collateral, timeliness, and UTI creation, were monitored continuously in relation to EMIR data. Monthly EMIR data quality tests were carried out, and top CPs were often contacted about reporting concerns.

• CY formed a specialized team to oversee data reporting, including EMIR, and sent out a circular to the market on reviews of the quality of data supplied to Trade Repositories (TRs). In 2021, a project on data-driven supervision was started, leveraging SFTR, MiFIR, and EMIR data together with improved tests on data quality and business activity.

• Germany (DE):

• To improve data quality, DE used a combination of desk-based research, outreach to businesses, information requests, executive meetings, investigations, and market communications. In 2020, special assessments of auditors' procedures were carried out, and to enhance data quality, cross-sectional assessments of audit reports were conducted afterward.

• To encourage compliance among CPs, DE started punishment and enforcement procedures in 2023.

• In order to track certain CPs and data quality, DE created dashboards with quality indicators. These dashboards were used for monthly selections based on possible errors, rejections, and data reconciliations. Tests of "UTI reconciliation" and data reconciliation were carried out for CCPs and globally significant credit institutions.

These regulatory updates underscore the commitment of CY and DE towards strengthening EMIR data reporting standards and ensuring compliance with regulatory obligations.

EMIR Regulation: ESMA's New Framework and Follow-up Initiatives

The regulatory control of data reached a major milestone when ESMA introduced a framework in November 2020 that addressed EMIR data quality issues and improved data provision. In order to address detected data quality issues at both the national and EU levels, this framework enables prompt contact between ESMA and National Competent Authorities (NCAs). With NCAs in charge of following up with reporting companies and reporting to ESMA on corrective steps taken, the framework focuses on resolving serious data quality issues affecting the use of data at the EU level. Exercises conducted after Q1 2021 and Q4 2022 under the framework showed discernible improvements in reporting procedures, especially in areas like timeliness and disparities in outstanding derivatives.

While issues still exist, a follow-up exercise in Q3 2023 revealed significant progress in addressing many areas of data quality. Overall, the cooperative efforts between NCAs and ESMA under this framework have resulted in measurable enhancements to the quality of EMIR data, highlighting the significance of continuous regulatory actions in maintaining the integrity of the financial system.

Regulatory Compliance: Data Access and Reporting under the EMIR Regulation

As part of its continuous efforts to guarantee authorities' access to EMIR data, ESMA has made major regulatory and supervisory advancements. A significant step forward was taken in 2020 when EMIR Refit technical standards were developed by ESMA and published in December of that same year. In June 2022, the European Commission adopted these standards, which include implementing technical standards (ITS) and regulatory technical standards (RTS). They include important topics such data reporting to Trade Repositories (TRs), data access for pertinent agencies, reconciliation processes, and TR registration. This regulatory framework improves data quality practices for counterparties (CPs) and TRs alike, while also harmonizing reporting obligations.

Moreover, ESMA has taken the initiative to offer direction and technical assistance to the sector in implementing EMIR Refit. Comprehensive recommendations on reporting, XML schemas, validation rules, and reconciliation tolerances are included in the final package, which was issued in December 2022. These resources are expected to have a major impact on how consistently TRs and market participants implement requirements, which will improve the caliber of transactions that are reported.

Apart from its policy initiatives, ESMA gave public authorities' access to EMIR data top priority in 2021, elevating it to a major topic of attention for supervisory actions. In order to assess TRs' adherence to data filtering regulations—a prerequisite for supplying EMIR data to authorities—ESMA carried out specialized horizontal off-site evaluations. Moreover, ESMA has demonstrated its dedication to bolstering strong supervisory actions in guaranteeing data integrity under EMIR legislation through its proactive monitoring of TRs for reporting concerns and cooperation with NCAs.