Bob Currie evaluates the industry’s progress in managing changes to the EU and UK derivatives transaction reporting regimes and key conclusions from ESMA’s latest data quality report
With the first anniversary of the EMIR Refit live date recently passed, and roughly nine months on from implementation in the UK, it is an appropriate time to reflect on how the industry has managed these changes to the derivatives reporting regime. Have these delivered the advances in transaction data quality and transparency that the regulatory authorities anticipated?
Current status quo
For Tim Hartley, Kaizen’s Director of EMIR Reporting, his expectation was that firms would be slightly further advanced than they are currently. Reporting firms made strong progress initially in updating their systems and ensuring that they were compliant at live date. However, that momentum has now slowed after the migration deadline as firms engage with their Day Two book of work.
The result is that firms are, in many cases, meeting the validation rules – and rejection rates, when trade reports are sent to the trade repository, are typically very low. However, firms can be compliant with validation rules and still have inaccuracies in their data. The challenge now is to identify any inaccuracies and to take necessary remedial action.
Craig Bisson, Partner and Head of Derivatives and Trading at Simmons & Simmons, notes that these changes to the EU and UK derivatives reporting regimes were more than just updates. These delivered new technical standards, validation rules and guidance – which ran to 329 pages in the case of the EU regime.
“Getting to grips with [these changes] and then – for firms that self-report – tackling the build and getting prepared for a Monday switch-on of the new regime was no mean feat,” he says.
From a buy-side perspective, Bisson notes that a lot of firms are employing voluntary delegated reporting arrangements. However, firms that delegate still need to understand the new rules. These firms remain liable for the accuracy of this reporting and they have an obligation, in certain circumstances, to bring instances of misreporting to the attention of the financial regulator.
Good, but could do better
The European Securities and Markets Authority (ESMA) released its most recent report on the quality and use of data in April 2025, which includes a section on progress with the EU EMIR Refit. The regulators intended that changes to the reporting regime should be a key step to enhancing the quality of reported data and to improving transparency in derivatives trading.
Overall, ESMA indicates that it has a “positive assessment” of the go-live, with “a wide majority of reporting counterparties being ready to report under the new standard”. However at live date, ESMA and national competent authorities (NCAs) identified significant differences between trade repositories (TRs) in their levels of preparedness. These differences related particularly to legal entity identifier (LEI) updates in the case of mergers and acquisitions (EMIR Q&A40), quality of reconciliation between TRs, and the delivery of the reports to the authorities. “Some TRs adopted the necessary fixes earlier than others”, ESMA notes (2025: 22)
Looking more closely at rejection rates at the derivatives/records level – which measure how many records have been rejected owing to errors over the total submitted derivatives within the report file – ESMA indicates that the rejection rate was close to 20% at migration date, but has now contracted to between 1% and 2.5%
This improvement notwithstanding, ESMA explains that this rejection rate remains “slightly elevated” relative to the average rate of 1.4% before EMIR REFIT went live. The regulatory authorities are therefore eager to drive further improvement. “ESMA and NCAs want to highlight that the supervisory expectation of the rejection rate at EEA30 level, and in consequence at entity level, should be close or equal to zero percent,” says the report (p 23)
Another major task under the EMIR Refit migration was to update and resubmit legacy derivatives into the new reporting format. For this task, reporting entities were accorded a further 180 days from the April 2024 EMIR Refit implementation date. ESMA reports that on this April 2024 live date 12 million derivatives transactions, or approximately 36% of the trade state dataset, were falling under this requirement. However, by February 2025, only 2% of in-scope transactions had not been upgraded.
More widely, the ESMA data report provides further analysis of reporting errors and shortcomings, including positions where the valuation has not been updated, outstanding positions reported with missing or abnormal maturities, and discrepancies between counterparties in this two-sided reporting regime relating to the number of derivatives positions outstanding.
For Kaizen’s Hartley, these statistics highlight that in some areas there has been improvement in data quality since the implementation deadline, whereas in others there has been little improvement. In-scope firms are still identifying inaccuracies in their reporting and setting remedies in place – and, consequently, just over 12 months on from the EU implementation deadline, it is still too early for the financial authorities to draw firm conclusions regarding how successful the EMIR Refit has been in improving the quality and use of reportable data.
In working with a wide range of reporting firms across the industry, Hartley indicates that Kaizen commonly identifies two to three errors per line item. “While this sounds alarming, it should not be viewed that way,” he explains. Legislators have provided close to 1000 pages of Level Three text, providing guidance on how the changes should be implemented. Firms need to digest the content of these texts, plan and implement them. “Understandably, this is a major undertaking and, by that fact, it is understandable that we are pointing out inaccuracies and improvements as we work with reporting firms,” he adds.
These errors relate to consistency of reporting across a firm’s trade population. For example, a firm may report a counterparty as being above the clearing threshold for one reported trade, but then report the same counterparty as being below the clearing threshold for another position.
This is partly the result of the complexity embedded in the revised reporting regime. EMIR Refit for the EU and the UK has increased the number of reportable fields to 204. Many of the existing fields under the legacy EMIR regulation have also changed, so this transition project has involved huge scale. As more Level 3 guidance has been issued, firms have been running hard to integrate this guidance into their reporting procedures.
Data quality and diligence
Simmon’s and Simmon’s Bisson notes that data quality sits at the heart of the EMIR reporting and ongoing diligence is key to meeting regulators’ expectations.
For UK EMIR, the Q&As published by the Financial Conduct Authority (FCA) outline the essentials: firms need effective systems and controls for timely and complete reporting, effective governance to oversee it, and mechanisms to identify and correct errors, notifying the FCA of any material errors or omissions. Firms are expected to use the warnings-feedback messages from the trade repository to monitor accuracy and to have arrangements in place with counterparties to address reconciliation breaks.
“There are a lot of similarities between UK and EU EMIR on this, but one big difference is the approach to misreporting notifications,” says Bisson. There is very specific guidance under the EU regime on how to assess whether an instance of misreporting is notifiable, including formulae and worked examples.
ESMA also expects firms to have processes in place to be able to assess this. “In our experience, this would be good practice in any event as you don’t want to be in the position of reading through the really quite complex guidance for the first time when you’ve got a live error on your hands,” says Bisson.
Expanding on this point, Pauline Ashall, Capital Markets Partner at Linklaters, indicates that the implementation of the new rules in both the EU and UK appeared to go smoothly, given the huge amount of effort that reporting counterparties, industry associations, the trade repositories and regulators had put into the process ahead of live date.
In managing this transition, there was detailed attention given to the new provision that entities responsible for reporting (ERRs) must notify their regulator of any significant errors and omissions in the reporting.
This was not a major change in the UK, notes Ashall. The FCA already expected firms to notify it of such failings and it already had an electronic form in place to support this process which did not change when the new rules came into force. However, for EU reporting, ESMA created a new notification form and has established a rather complex methodology for assessing when an error or omission should be notified.
In cases where a counterparty has delegated reporting to a third party, the firm needs to maintain effective oversight of the delegate’s reporting and the delegate will need to report any failings to the delegating party.
“This led to some tension between sell-side entities that act as delegate, and buy-side entities, that tend to delegate reporting but remain responsible for reporting errors,” says Ashall. In tackling this challenge, the Master Regulatory Reporting Agreement, the industry’s template agreement for delegated reporting, has been modified to address communication of errors and omissions and the need to resolve reconciliation breaks.
The NCAs are contacting firms when they identify inaccuracies or omissions and they expect these shortcomings to be resolved promptly. This has involved a major resource cost for reporting firms in removing these inaccuracies, even when it has not resulted in a financial penalty.
For Kaizen’s Hartley, the NCAs have adopted a proactive, data-driven approach to this challenge, creating data quality dashboards which focus on around 25 data quality indicators. These dashboards have provided effective early warning of any data gaps or quality issues.
In supporting this process, Kaizen offers a wide range of testing that evaluates the integrity of a reporting firm’s data set and enables them to prioritise issues for attention. “In monitoring the regulatory implementation, we have noted improvement across most firms on a month-by-month basis,” says Hartley.
He recognises this is an ongoing process, however, for which the EMIR Refit live date was just the start. As reporting firms expand their trading and risk management strategies to employ new derivatives products, for example, this will again impact their reporting and trigger a new set of amendments and testing.
