EMIR Refit: one year on. Are you really calm?

The reform known as EMIR Refit marks a turning point in European regulation of derivatives markets. Created as an update to the European Market Infrastructure Regulation (EMIR), its purpose is to improve the quality of reported data, enhance transparency, and facilitate financial risk oversight. However, this modernization does not come without costs: for entities required to report, EMIR Refit poses a significant technical and operational challenge.

One of the first obstacles is the significant increase in the number of mandatory fields, from 129 to 203. This increase requires entities to capture more detailed information on each transaction, not only at the initial stage, but also throughout its entire life cycle. Contractual modifications, cancellations, novations, or transfers must be reflected in the system. Reporting is no longer a one-off event but has become a continuous process, requiring greater internal traceability and more complex controls.

Added to this change is the obligation to use the ISO 20022 XML standard as the sole communication format. Although this standard provides consistency and facilitates interoperability between systems, its technical implementation is demanding. Many entities have had to redesign their internal platforms to translate their data into a much more rigid structure. In this new environment, small errors in message construction can lead to the complete rejection of the report, increasing pressure on validation and quality control processes.

Another important challenge is the management of unique identifiers. The UTI (Unique Trade Identifier) must be agreed upon by both counterparties to the transaction, while the UPI (Unique Product Identifier) must be correctly assigned according to the type of derivative. This requires constant coordination between entities with different technological infrastructures and operating rhythms that are not always synchronized. Any failure in these identifiers can lead to duplications, inconsistencies, or rejections by the repositories.

In addition, EMIR Refit introduces the obligation to report not only transactions, but also events associated with them using specific fields such as Event Type and Action Type. This turns the reporting system into a kind of complete contract history, similar to a file that records every relevant change. Operational complexity increases, as systems must be able to distinguish between initial transactions, modifications, cancellations, and error corrections.

Responsibility for data quality is also increased. Entities must not only report, but are also required to detect and report significant errors to the competent authorities. This requires more sophisticated internal reconciliation processes and constant monitoring of the information sent to repositories.

This new framework affects financial counterparties, non-financial counterparties, trade repositories, and supervisory authorities, including ESMA. All of them must adapt to a more structured and demanding system, where data consistency is as important as data volume.

In conclusion, EMIR Refit represents a necessary improvement to achieve a more transparent and supervisable derivatives market. However, its implementation poses a considerable technical challenge. The increase in fields, the adoption of ISO 20022, the management of unique identifiers, and the comprehensive monitoring of the contract lifecycle require entities to evolve technologically. The regulation not only changes the rules of the game, but also the way financial systems manage and understand their own data.

Given all these changes, the first year after Refit has been a period of adaptation, in which processes have been adjusted and key lessons learned have been consolidated. In this second year, supervision will be much stricter and will ensure that the regulation is complied with, applying sanctions where appropriate.