January 4, 2021

1        Introduction

The UK exited European Union on 31/01/2020 and then entered a transitional period which ended on 31/12/2020.

A Temporary Transitional Power (TTP) has been agreed to allow UK counterparties to delay adjusting to new UK regulations, however this does not apply for EMIR and MIFIR reporting. (Temporary Transitional Power, FCA)

Therefore, all changes to MiFIR and EMIR reporting obligations due to Brexit are applicable from 11pm on 31/12/2020.

This document outlines different trading scenarios, and the impact Brexit has had on reporting obligations.

1.1      Post Brexit Jurisdictions

UK counterparties are no longer obliged to follow European Commission (EC) regulations. They are now mandated by the Financial Conduct Authority (FCA).

The FCA regulations remain unchanged from the EC regulations for the most part, with the FCA only making necessary amendments to reflect UK’s position outside the EU.

All Guidelines, Q&As and Technical specs implemented before 31/12/2020 by ESMA also apply to UK entities after the transitional period (FCA Statement, Section 10).

2       EMIR Reporting Obligation Post Brexit

2.1     UK EMIR Reporting

UK counterparties (3.2.2) must report new trades and updates on all open positions to a UK TR after 11pm on 31/12/2020.

The scope of the reportable products has not changed under the FCA EMIR regulation. This means derivative contracts in scope[1] of EU EMIR obligation, are also in scope for UK EMIR obligation[2].

All UK counterparties (3.2.2) should report to a UK TR, regardless of where the transaction is executed (on/off exchange or OTP, in/outside the EU) and who the other counterparty is.

2.1.1      Position Termination and Porting

UK counterparties (3.2.2) must ensure open positions at an EU TR at this time are ported to a UK TR. (Section “Reporting of new and outstanding trades under the UK EMIR reporting regime by counterparties in scope”, FCA Statement)

Any open trades reported by a UK counterparty (3.2.2) to an EU TR will be terminated by the TRs at the end of the Transition Period (section 1.4, ESMA Statement).

UK counterparties (3.2.2) using an EU TR before end of the transition period do not have to report any modifications to trades concluded or rejected before 31/12/2020 (point 4 and 9, ESMA Statement).

2.2    Counterparties

2.2.1     EU Counterparties (EMIR)

EU counterparties with an EMIR reporting obligation (EMIR, Article 9) include CCPs (EMIR, Article 2(1)), Financial Counterparties (EMIR, Article 2(8)) and Non-Financial Counterparties (EMIR, Article 2(9)).

CCPs and Financial Counterparties are defined by European regulations and non-financial counterparties are defined as “established in the Union”.

2.2.2    UK Counterparties (EMIR)

The scope of counterparties subject to UK EMIR reporting has been directly copied from EU regulation. UK CCPs and UK Financial Counterparties are no longer defined in EU legislation but are defined in UK regulations.

Non-financial counterparties definition has been updated from “established in the union” to “established in United Kingdom” ((UK EMIR, Article 2(9))).

[1] ESMA Reportable Products: Article 1.1 and Article 2(5) of EU EMIR 648/2012, Directive 2004/39/EC, Annex I, Section C, points (4) to (10)

[2] FCA Reportable Products: Amended Article 1.1 and Article 2(5) of UK EMIR (2019 No. 335), Financial Services and Markets Act 2000 (Regulated Activities) Order 2001, Schedule 2, Part 1, paragraphs 4 to 10

2.2.3      Branches

Under EMIR (UK and EU), branches of investment firms should follow the obligation of the headquarters of their investment firm. (Paragraph 6 and 7 on page 2, FCA Statement)

2.3      EU EMIR Reporting

Other than ensuring that EMIR reports are directed at TR within EU, EU Counterparties (3.2.1) are not affected by the end of Transitional Period and should continue reporting as normal. (point 7, ESMA Statement).

2.4      Delegated Reporting

There are no restrictions on providing delegated reporting services by UK counterparties on behalf of EU firms and vice versa.

Firms providing a delegated reporting service must ensure the data is reported to the TR relevant to the jurisdiction of counterparty (point 3, ESMA Statement).

2.5      NFC-

Under EMIR REFIT Non-Financial Counterparties below the clearing threshold (NFC-) trading with Financial Counterparties (FC) do not have a reporting obligation as the FC is responsible for reporting both sides. (EMIR REFIT, Article 9.1a)

Where a NFC- from 1 jurisdiction trades with a FC from another, the NFC- is responsible for ensuring their trades are reported to TR of their jurisdiction. (Article 9, 1a. paragraph 4, EMIR RTS) (Paragraph 4 and 5 on page 2, FCA Statement). The FC can, but is not obliged to, offer the delegated reporting (See 3.4).

This requirement could be relaxed and allow NFC- to not report if equivalence decision between UK and EU is reached (see 5.1).

2.6      Pairing and Matching

There is no requirement for pairing and matching of trades between EU and UK TRs. (point 13, ESMA Statement).

Inter-TR reconciliation requirement for UK TRs is temporarily suspended by FCA. (Inter-TR reconciliation, FCA website).

3    MiFIR Reporting Obligation Post Brexit

3.1      UK MiFIR Reporting

UK counterparties (4.3.2) must report all executions where the instrument;

  • Is admitted to trading on a UK/Gibraltar trading venue (4.1.2)
  • Is admitted to trading on an EU trading venue (4.1.1)
  • Has an underlying which is 1) or 2)
  • Has an underlying index or basket with at least 1 component which is 1) or 2)

(Reportable Instruments, FCA Website)

All executions for products in scope must be submitted to an UK ARM or directly to FCA.

3.1.1   Trading Venue (EU)

MiFIR defines ‘trading venue’ as regulated market, an MTF or an OTF (MiFIR, Article 4 1(24)). UK RMs, OTFs and MTFs are no longer included in this definition.

3.1.2   Trading Venue (UK/Gibraltar)

The FCA version of MiFIR uses the same definition for venue, but only where the entity is located in the UK. (Article 2(4) of UK EMIR (2019 No. 335))

3.2      EU MiFIR Reporting

Transactions executed by EU counterparties (4.3.1) on UK venues (4.1.2) are considered OTC by ESMA (Paragraph 1, page 3, ESMA Public Statement) are only reportable if the product is dual listed or has an underlying listed on an EU venue (4.1.1).

Products which are not dual listed on EU venues (4.1.1) or don’t have an underlying listed in the EU have fallen out of scope for MiFIR reporting by EU counterparties.

3.2.1   EU MIFIR: UK NP Identification

UK nationals should now be identified with the same methods as any other non-EU national: Passport or CONCAT (RTS 22, Annex II – see “All other countries”). National insurance numbers should not be used.

3.3      Counterparties

3.3.1    EU Counterparties (MiFIR)

The MiFIR reporting obligation (MiFIR, Article 26) applies to EU MiFIR Investment Firms (MiFIR, Article 4 (1) (II)). UK entities are no longer captured by this definition.

3.3.2    UK Counterparties (MiFIR)

The FCA MiFIR reporting obligation applies to FCA defined MiFID investment firms (Glossary, FCA Handbook).

3.3.3    Branches

Where a UK counterparty (4.3.2) decides to purchase a dual listed product and passes the execution to an EU branch, the transaction must be reported twice: to UK and EU NCAs.

The opposite also applies (i.e. EU Counterparty (4.3.1) executing through UK branch execution should be reported twice). (Transaction reporting, FCA FIRDS and transaction reporting) (Article 14(1), ESMA RTS 22)

In these cases, the report submitted by the branch should populate MiFID field 5 (Investment Firm covered by Directive 2014/65/EU) as ‘false’.

4       What’s Next

4.1      UK Equivalence

A decision is expected on whether the EU will grant the UK regulatory equivalence. The earliest this decision is expected for is March 2021. (Brexit: UK to start talks on quick EU financial services agreement, City A.M)

If the UK is granted equivalence by EU, this will:

  • Recognise UK venues as equivalent to a regulated market.
    • EU Entities trading on UK markets would be trading ETD rather than OTC.
  • Allow NFC-s to utilise the reporting relief under EMIR REFIT if the other counterparty is an FC (point 10, ESMA Statement) (Mandatory delegated reporting under UK EMIR, FCA Statement)

4.2     Regulatory Change

The EC have significant changes planned for both MiFIR and EMIR reporting.

4.2.1    ESMA Consultation on MiFIR Reporting

For MiFIR, ESMA are at the 1st stage of a consultation process for amending reporting requirements. They have suggested changes to the RTS 22 and RTS 23 reporting obligations, based upon their experience since go live in January 2018, which they have requested feedback from all stakeholders on.

They plan to submit their final report to the European Commission in Q1 2021, and legislation go live can be expected ~24 months following that. (ESMA consultation on MiFIR Reporting, ESMA Website)

4.2.2     ESMA EMIR REFIT Technical Standards

For EMIR, a full consultation process has been completed by ESMA for EMIR reporting within the union. They have published their final report to the EC in December 2020, and the legislation will be live 18 months after it is published in the European Journal. (ESMA Publish Final Draft of EMIR REFIT, ESMA Website)

4.2.3    FCA Regulatory Change

At the time of writing, it seems the FCA intend to align all regulations to EU regulations. However, this might change before the legislation goes live. Stakeholders should monitor the FCA announcements for further details.

5      Reporting Scenarios

Please see below for example scenarios of entity definitions and reporting obligations as described in this document:

5.1     MiFIR

Ref Scenario EU MIFIR Reporting Obligation? UK MIFIR Reporting Obligation?
1 EU CPTY Transaction (Dual listing) Y
2 EU CPTY Transaction (EU only listing) Y
3 EU CPTY Transaction (UK only listing)
4 UK CPTY Transaction (Dual listing) Y
5 UK CPTY Transaction (EU only listing) Y
6 UK CPTY Transaction (UK only listing) Y
7 EU CPTY (HQ), UK Branch Execution (Dual listing) Y Y
8 EU CPTY (HQ), UK Branch Execution (EU only listing) Y Y
9 EU CPTY (HQ), UK Branch Execution (UK only listing) Y
10 UK CPTY (HQ), EU Branch Execution (Dual listing) Y Y
11 UK CPTY (HQ), EU Branch Execution (EU only listing) Y Y
12 UK CPTY (HQ), EU Branch Execution (UK only listing) Y

Table 2 – Brexit MiFIR Reporting Scenarios

5. 2   EMIR

Ref Scenario EU EMIR Reporting Obligation? UK EMIR Reporting Obligation?
1 EU CPTY Transaction (Dual listing) Y
2 EU CPTY Transaction (EU listing) Y
3 EU CPTY Transaction (UK listing) Y
4 UK CPTY Transaction (Dual listing) Y
5 UK CPTY Transaction (EU listing) Y
6 UK CPTY Transaction (UK listing) Y
7 EU CPTY (HQ), UK Branch Execution (Dual listing) Y
8 EU CPTY (HQ), UK Branch Execution (EU listing) Y
9 EU CPTY (HQ), UK Branch Execution (UK listing) Y
10 UK CPTY (HQ), EU Branch Execution (Dual listing) Y
11 UK CPTY (HQ), EU Branch Execution (EU listing) Y
12 UK CPTY (HQ), EU Branch Execution (UK listing) Y
13 EU NFC- (Not CPTY) trading with EU FC N (Reported by FC)
14 EU NFC- (Not CPTY) trading with UK FC Y
15 UK NFC- (Not CPTY) trading with UK FC N (Reported by FC)
16 UK NFC- (Not CPTY) trading with EU FC Y

Table 1 – Brexit EMIR Reporting Scenarios

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