With 15 September this Sunday, the date is imminent by which banks must have portfolio reconciliation and dispute resolution agreements in place with their non-financial counterparties. However, a recent Thomson Reuters article accurately sums up the situation: ‘Most sell-side firms are not even close to getting all their NFC clients on board with EMIR. With the portfolio reconciliation and dispute resolution deadline only a few days away, firms could have some difficult conversations with their regulators ahead.’
Though the industry has known about the deadline for almost a year, the practical difficulties of counterparty classification were only realised by firms and acknowledged by regulators much later (see previous article). Furthermore, due to a lack of outreach on the part of all parties, the corporates have only known about their obligations under EMIR for a couple of months:
“We’re getting down to the last days and hours and we remain at low levels of awareness and uncertainty among corporates and the buy side about what to do. There is a distinct lack of a unified message coming from the sell side across Europe about how they would like the infrastructure to work,” said PJ Di Giammarino, chief executive of JWG.
Therefore, when it gets back to work on Monday, the industry is faced with the unenviable task of convincing the regulators that they have implemented EMIR fully. With partial take-up on some industry solutions, such as the ISDA protocol, and banks working hard to reach out to their counterparties, it looks like the industry might have done just enough to escape the fines this time around.
However, with more EMIR deadlines coming and more regulations to implement in 2014, some of which depend on firms’ implementation of EMIR, from here on in it only gets more difficult: “The real challenge is that this is just portfolio reconciliation, which can be managed with a good set of procedures and a client list — but it is a mere skirmish in the context of EMIR. Looking backwards, we can now see how poorly the industry has dealt with the first round of change and therefore how high the bar for reporting obligations, clearing and the rest of the EU‘s requirements — including MiFID II — is actually set.”
In short, we’ve gotten away with it this time, but for how long? Firms need to use their borrowed time wisely to develop workable solutions to these problems before the next panic hits.