Under EMIR, counterparties to derivative trades (“Counterparties”) are required to provide Trade Repositories (“TRs”) with information regarding derivatives trades. This information is utilised by the Central Bank of Ireland (“CBI”) for supervisory purposes and to manage and mitigate systemic and contagion risk.
The CBI has been very clear that the Counterparty to a derivative contract is legally responsible for discharging its obligations under EMIR and therefore must take appropriate steps to ensure that all derivative contracts it has concluded are reported to the TR in a complete, accurate and timely manner.
There are currently 4 approved TRs listed by ESMA:
One Fund Recs client, a global Investment Manager, went to market for a robust technology solution that could complete EMIR reconciliations and support the EMIR reporting oversight process.
They needed a solution which could consume, normalise, and then reconcile trade data from all of their in-scope TRs against the core accounting book of record for the funds. The solution needed to be fully hosted by the vendor and have the ability to deliver management information reports showing completeness, accuracy, exceptions and trends.
The client had a large volume of funds as well as a delegated reporting model via appointed sub investment managers which added complexity to the project.
The solution also needed to be able to cater for future regulations such as SFTR.
Our client searched the market and considered several solutions prior to selecting the Fund Recs EMIR reconciliation module within our Velocity platform.
Key pieces of criteria for selection included:
The below is a general overview of Fund Recs EMIR Reconciliation Solution and how it meets the above mentioned requirements.
A Fully Hosted Solution
Fund Recs is hosted on Amazon Web Services, meeting the need to deliver a fully hosted solution. We also provide enterprise grade security:
Strong data ingestion capabilities
At Fund Recs we have an extremely powerful and user friendly parsing engine which is a no code solution. Any end user can map data through the UI using natural language rules. There is no coding or software development needed.
This functionality is so strong that our clients have asked for this to be made available as a stand alone product and this is where our Fusion module was born out of.
For EMIR Reconciliations, we are currently dealing with data from 4 different TRs as well as from most Admins in the industry. As a result of the number of sources we are dealing with, having flexible ingestion workflows is crucial for the process.
The team at Fund Recs have worked at leading Fund Administrators / Asset Management Firms and since starting Fund Recs have developed award winning solutions for the Industry. Our focus on this Industry means all our product decisions are centred around the following question:
'Will this help automate the funds industry?'
Partnering with the Fund Recs team you won't have to explain the Industry, its demands, or future opportunities. Our mission is to automate the back and middle office functions in the industry and as we grow, this will continue to be our long-term focus.
Another important feature of the Fund Recs platform is that it has been designed to be setup, operated, and managed by end users. This flexibility means no IT support or coding knowledge are needed to setup new data feeds, templates, reports, or business rules. This can all be self-managed through the Fund Recs user interface.
The Fund Recs velocity module caters for all reconciliations needs which allows us to on-board our clients with additional regulatory recs as required. SFTR has been the first addition and is very similar to what is being done for EMIR with SFTs, Repos and Collateral reconciliations and different data quality checks being applied. Although there are differences, the end to end workflow is much the same with the output customised for the relevant regulation.
Having this capability provides our clients with confidence on us delivering for any future regulations they need oversight on.
In addition to the above, our solution is integrated with the DTCC so that all data feeds are processed directly to us on a daily basis with zero effort needed by our clients. Read more about the Fund Recs and DTCC partnership here.
When we ingest the TR data, all the fields are normalised, LEIs (Legal Entity Identifier) are converted into the legal name of the counterparty, the UTI (Unique Trade Identifier) is checked to ensure it is unique and all data quality checks are performed. We have recently created a new standalone data quality process where we just run the process on the TR data to add to the oversight that is being completed. This is an additional check so that our clients can check for data quality on the fly and is provided to clients via SFTP daily.
Thought Leadership/Regulatory Insights
We have also worked with the CBI to ensure the data quality checks we apply to our process is what they would expect from a robust oversight process. This is an ongoing process where we regularly seek guidance from the CBI on their expectations as well that of ESMA.
To automate the rec process and match these derivatives is not a straightforward process as there are no unique identifiers available on these instruments. To overcome this we create security identifiers from the information we have on both sides of the rec including Asset Type, Trade Date, Settle/Maturity Date, Strike & Notional or any other trade economics that is unique per asset type. Having this on both sides of the rec has given us a chance to have a straight through process for EMIR Oversight.
Case Study Results
Go Live (2021)
Recs Auto Completed
Rows Auto Matched
As you can see from the above table, the results of the ongoing improvements and issue resolution has enabled our client to have an extremely robust oversight process.
1 out of 5 recs is being auto approved by the system which means nobody has done anything on this rec end to end. From data ingestion, matching logic, data quality checks & rec approval, this has all been processed by Fund Recs in the backend. This removes a large amount of manual processing from our client’s monthly oversight and reduces FTE required for the EMIR Oversight.
We have also increased the auto match rates to close to 100% by improving the Security ID creation process and working with the data we have for each asset type. By achieving rates as high as 97% allows our clients to focus on exceptions rather than having to match trades before the exception based process can kick off.
The number of breaks has been reduced by over 2,000% by working with our client to identify trends in the data, what Sub IMs continually have Data Quality issues, what data quality issues are they seeing, where are we seeing timing issues, how long does it take for the TR to reflect the trades, when are trades settled and so on. All of this was possible once we had the required sample size to see these trends. Since then we are continuing to improve on the auto categorisation of breaks so that common issues are easily identifiable by our clients.
All the above combined has allowed us to have a much more straight through process and ensures our clients are just focusing on the exceptions. In this case, it has provided our client with much more confidence in their oversight process and in turn has facilitated a positive dialogue with the regulator regarding the firm’s commitment to maintaining the highest standards of EMIR reporting oversight. Having this process in place has greatly reduced the risk associated with derivative trades and allows our client to focus on delivering for their clients rather than spending unnecessary time on data capture, data processing and matching.
Fund Recs develops cloud reconciliation software for the funds industry. We'll be sharing our experiences and thoughts on our blog as we build our company.