2014 was a challenging year of regulatory implementation for the buyside, beginning in February with the first European Market Infrastructure Regulation (EMIR) deadline (matters were little helped by the guidelines changing a day before they became mandatory).
Now, firms are grappling with the new challenges that have emerged after almost a year of living with EMIR. The European Securities and Markets Authority (ESMA) has also been watching closely for teething problems with the regulation – the Level 1 Data Validation
rules imposed by ESMA, and implemented by the TRs by December 1st, particularly tightened up the use of unique trade identifiers (UTIs).
UTIs were one of the sticking points of EMIR as there was no consensus over how to generate them. ESMA issued guidance in February 2014 which suggested four different ways that they could be generated. Internal methods for generating identifiers were no
longer to be accepted, as the sellside also had to approve submitted IDs, centring attention on what had been a pain point for many members of the buyside.
Although there is little doubt that those firms with sound data management practices in place had less of an issue complying with EMIR’s data validation rules than others, now the deadline has passed most seem to have found a way of handling the issue.
That said, as EMIR implementation continues in 2015 and the rules bed in, it is likely that more universally agreed working practices will emerge with UTIs. As we all become wiser, more efficient compliance mechanisms will be identified, very likely different
from those that were quickest to implement initially. Whatever they are though, strong data quality and management will be key to coping with UTIs and the associated mountain of reporting brought about by EMIR.
This presents issues for market participants with complex, siloed systems and data infrastructures. A system-inherent challenge for such environments is that all systems involved in the trading and settlement process have to receive and/or provide the right
information at the correct time in the relevant formats to enable reporting.
As well as evolving best practice considerations, the industry is likely to see further changes over the next one or two years as regulators refine requirements in order to improve the quality of data reported to trade repositories. Regulators are likely
to put higher value on accurate, well-managed information delivered in the right format.
And broader industry initiatives will also exert pressure. For example, reducing systemic risk through shortersettlement cycles (T+1 at some point no doubt) means that firms will need to be able to generate UTIs at an even swifter pace.
All of which reinforces the importance of ensuring that solutions for EMIR compliance remain flexible and adaptable – data-linked regulatory requirements have been built on shifting sand and firms need to be prepared for both near and longer-term change.