05 March 2014

Risk.net: Insurers wrestle with EMIR reporting challenge

This latest raft of legislation, which is part of the European Union’s European Market Infrastructure Regulation (EMIR), requires both over-the-counter bilateral trades and those cleared through an exchange to be reported to one of six authorised trade repositories. Any derivatives trades that were open on February 12 were supposed to have been reported from the moment that the registration entered into force. Firms have an additional three years to report any trades that were open on August 16, 2012 but closed before the reporting deadline.

“It has been a huge task and it was clear even before the deadline that the industry wouldn’t be 100 per cent compliant to the letter of the law", says one source from a large investment bank, which has been helping firms prepare for the new requirements. “Most of the large market participants are reporting trades with some gaps or inconsistencies, but some market participants haven’t managed to report anything. We’d now expect some remediation among big players to improve their reporting and bring some of the smaller players online", the source adds.

Firms that fail to report their derivatives trades, or do so inaccurately, could be fined, although few in the industry expect fines to be levied during the first few months of the new requirements.

“National regulators are being pragmatic and recognise that there are going to be teething problems", says John Southgate, London-based head of derivatives and collateral product management for Europe, the Middle East and Africa (EMEA) at financial services provider Northern Trust. “While they have no legal means to offer relief on an EU regulation, regulators seem to be taking the view that, as long as firms are taking appropriate steps to become compliant, then they won’t immediately impose fines", says Southgate.

On February 21, the UK’s Financial Conduct Authority (FCA) put out a notice indicating that firms that missed the February 12 deadline have until April 30 to implement a “detailed and realistic” plan about how they will achieve compliance.

The insurance industry has faced specific challenges in complying with the new rules, given their large asset volumes and correspondingly high number of trades that are executed. Many insurers also have the additional problem of legacy architecture, which has been a consequence of a high level of merger activity within the industry.

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