More than 10 years after the publication of EMIR, the EU regulation on OTC derivatives, financial institutions continue to face significant challenges in achieving full compliance with its extensive requirements:
· Despite the requirement in article 11.1 of EMIR to perform confirmations for uncleared derivatives through “electronic means”,approximately 50% of these confirmations are still carried out manually. This involves laborious file comparisons and navigating booking systems, resulting in a time-consuming process and many errors.
· As a result of this manual process, confirmations often suffer from lengthy delays, taking several days to be signed. For complex products, confirmations may not be signed throughout the entire duration of the derivatives, resulting in severe legal risks. This contradicts the stipulation in EMIR’s article 12.1, which states that “an OTC derivative contract […] shall be confirmed at the latest by the end of the business day following the date of execution of the contract.” This requirement should be especially adhered to for “non-standard or complex OTC derivative contracts,” as emphasized in recital 27.
· Despite the Commission Delegated Regulation 2022/1858, article 3.5, which mandates consistency in the reports sent by counterparties to reduce reconciliation errors provided by Trade repositories, 60% of regulatory reports still exhibit inconsistencies between counterparties, including critical aspects such as execution timestamp, underlying type or product identification. Such issues are expected to further increase with the implementation of EMIR REFIT.
Fragmos Chain’s platform will help clients significantly improve their compliance with
EMIR:
- ELECTRONIC MATCHING: leveraging Fragmos Chain’s electronic matching system, clients can automate the majority of reconciliations, leading to a dramatic reduction in confirmation timelines. Confirmations can now be completed in as little as a few minutes. This automation capability extends to non-standard and complex OTC derivative contracts, which are precisely the focus of Fragmos Chain’s solution.
- CONSISTENCY BETWEEN COUNTERPARTIES: Fragmos Chain’s platform ensures native consistency between counterparties by implementing a comprehensive matching process before data is transmitted to the Trade Repositories. This integration is bolstered by Fragmos Chain’s collaboration with ISDA’s prominent initiative on regulatory reporting, Digital Regulatory Reporting (DRR), to generate regulatory reports based on Common Domain Model (CDM) format and improve their quality.
- UTI: In addition Fragmos Chain’s platform eliminates the burden of manually defining the Unique Trade Identifier (UTI), which helps complying with the requirement specified in the Commission delegated regulation No 148/2013, annex, section 2b.
Fragmos Chain has developed a platform to automate post-trade processes for all kinds of OTC derivatives. Our matching algorithm generates a shared description of derivatives trades and events in real-time, and ensures its legal enforceability. This results in a more accurate, efficient, and secure trade process.
