Background

The Financial Conduct Authority (FCA) and the Bank of England (BoE) previously published Policy Statement (PS23/2) setting out changes to the derivative reporting framework under UK EMIR. We have previously summarised the key changes, the majority of which are applicable from 30 September 2024 for derivatives entered into from that date (with a separate requirement that derivatives outstanding on 30 September 2024 must have additional information reported by 31 March 2025). Our summary also noted that the EU is making similar changes under EU EMIR from 29 April 2024.

The FCA and the BoE are now seeking feedback on draft guidance (in the form of Q&As) for reporting under the revised UK EMIR reporting requirements. The guidance will assist market participants in applying the amended reporting rules.

Draft Q&As 

The Q&As will be divided up into the following topics. This first consultation is covering topics one to five.

1. Transitional Arrangements  
2. Reconciliations 
3. Errors and Omissions 
4. Derivative Identifiers 
5. Action and Events 
6. Venues 
7. Exchange Traded Derivatives 
8. Margin and Collateral 
9. Clearing 
10. Post Trade Risk Reduction  
11. Position Level Reporting 
12. Asset Class and Product Specific  

Currently, the Q&As are in draft form and so may be subject to change. Once finalised after the consultation has concluded, the Q&As will constitute supporting guidance on how the updated UK derivatives reporting framework will be implemented.

Key considerations for buy-side firms

For buy-side firms that have delegated reporting to another party, draft Q&A section three on “Errors and Omissions” is of particular interest. Despite delegating reporting to a third party, such a buy-side firm remains an “entity responsible for reporting”, and in keeping with this the FCA and BoE consider that it should have a degree of ongoing responsibility.  

Draft Q&A 3.1 (copied below) notes that all errors and omissions need to be remediated, and that this remediation applies to both live and matured trades (regardless of age). While relevant market participants should already be ensuring the correctness of reported details, in our experience remediation can pose operational challenges for buy-side firms that result in a need to engage specialist third-party reporting service providers. Helpfully, the draft Q&A also provides that for “large and complex” remediation exercises, the FCA or BoE should be engaged with to agree a proportionate remediation plan.

"3.1 What approach should entities responsible for reporting take when correcting errors and omissions in historic reports?

Entities with an obligation to report the details of derivative trades under Article 9 of UK EMIR are required to ensure that such details are complete, accurate and reported on time. 

Entities responsible for reporting are expected to remediate all errors and omissions to their reports. This includes both live and matured trades regardless of age. However, where remediation may be large and complex, entities responsible for reporting should engage bilaterally with the relevant Authority to agree a remediation plan that is proportionate to the complexity of the error and/or omission that requires remediation.  

Where any material errors or omissions are identified, entities responsible for reporting must notify the relevant Authority as soon as practicably possible.  

• CCPs should notify the Bank of England by completing the Errors and Omissions form available on its website. 
• All other reporting counterparties should notify the FCA by completing the Errors and Omissions form available on its website. 

Whereas completion of the form can be performed by any party, it is the responsibility of the counterparty in scope of UK EMIR Article 9 reporting requirement who should submit the notification to the relevant Authority."

Draft Q&A 3.2 (copied below) provides that delegating entities should ensure that they have in place sufficient systems, controls and oversight of the delegated reporting to:

• ensure timely and complete reporting;
• have effective governance to oversee reporting;  
• identify and remediate errors and omissions; and
• notify material errors and omissions to the appropriate regulator.

Further, entities should have arrangements with their counterparties to reconcile breaks. 

"3.2 What arrangements should entities responsible for reporting have in place to identify errors and omissions in their reported data?

At a minimum, we expect entities responsible for reporting to have systems and controls in place to ensure timely and complete reporting in accordance with Article 9 of UK EMIR.

In addition, entities responsible for reporting should ensure they have in place:

• effective governance to oversee their UK EMIR reporting;
• effective systems and controls to identify and remediate errors and omissions (including the notification of any errors and omissions to the relevant Authority); and
• arrangements with counterparties to address reconciliation breaks.

Entities responsible for reporting should assess the materiality of any errors or omissions in their UK EMIR reporting (including identification of any errors and omissions that are to be reported to the relevant Authority) based on the size, nature, and complexity of their business."

Next steps

The FCA and BoE have invited feedback on the draft Q&As for topics one to five, and such feedback should be provided by 28 March 2024. They will be consulting on topics six to 12 later in spring 2024.

Market participants should review the draft Q&As and consider the impact these may have on any systems, processes or policies that they have in place. If clients feel strongly about any of the guidance and wish to respond to the consultation, Macfarlanes can assist with that response.

Please speak to your usual Macfarlanes contact if you have any questions.