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“From a buy-side perspective, a lot of firms thought they could delegate to their sell-side brokers to report on the behalf, and that’s what happened in February,” said Mark Husler, chief executive of UnaVista, which provides a platform for trade matching, validation and reconciliation. “Move forward to August, what they’ve now realised is that the sell side does not have the collateral and valuation data to report on their behalf. A lot of the large asset managers that we have helped have come to the realisation late in the day that they can delegate reporting, but they can’t delegate the liability that comes from dual-sided nor can they delegate the collateral and valuation reporting,” Husler said.
EMIR requires reporting of listed as well as OTC derivatives. The consequences for a firm not being in compliance can lead to heavy fines. “If we learn from the lessons of MiFID, when it first started it was a ‘fire and forget’ regime,” Husler said. “Everyone was concerned about getting data to the regulator, but no one was overly concerned about completeness and accuracy. That’s where we are with EMIR. The difference is that there are multimillion pound fines being handed out where firms that were stuck with that fire and forget mentality still haven’t got the risk and control functions in place.”
He added, “Our key message is that, yes, it’s about adhering to rules and getting data out the door, but you may as well get it right from day one,” said Husler. “So we focus on helping clients with risk and controls, not just warehousing.”
Unlike the Dodd-Frank Act, which has a single-sided reporting obligation, meaning the executing broker or clearing member has responsibility for reporting to a trade repository, EMIR is dual-sided, meaning that both the firm itself and the broker or clearing member are required to report. Although the firm has the option of delegating to the broker its reporting obligation, it cannot delegate liability for the collateral and valuation information that it provides to the broker.