Dear CEO: MFSA notes financial entities ‘still have room for improvement’ to comply with EMIR REFIT

Malta Financial Services Authority’s (MFSA) Head of Capital Markets Supervision Nathan Fenech has stated that while compliance with EMIR REFIT has led to a more adherent market, “there is still room for improvement.”

On Friday, the authority issued its latest Dear CEO letter, outlining local financial entities’ level of preparedness, ahead of enhanced reporting requirements prompted by the EMIR REFIT. Changes will see the number of reporting fields increase from 129 to 203.

Dear CEO letters are direct means by which the MFSA communicates with the management of regulated entities, including the board of directors and CEOs.

The European Market Infrastructure Regulation (EMIR) REFIT, part of the European Union (EU)’s Regulatory Fitness Programme, aims to increase transparency, standardisation, and data quality in over-the-counter (OTC) derivatives markets.

EMIR goes back to the 2008 financial crisis, which had highlighted significant weaknesses in these markets. In response to this, the G20 leaders committed to reforms aimed at improving market transparency, preventing abuse, and reducing systemic risks.

The original EMIR framework, adopted by the EU in 2012, sought to increase transparency, mitigate credit risk, and reduce operational risk.

On the other hand, EMIR REFIT, which became effective from 17th June 2019, simplifies and refines these regulations to ensure they deliver their intended benefits more efficiently.

Based on the responses it received, MFSA noted that entities generally appeared to be adequately prepared for the reporting changes which subsequently came into force on 29th April 2024.

Nonetheless, findings also alluded the need for some respondents to improve their existing arrangements. As a result, the MFSA issued the Dear CEO letter to outline the main findings and its expectations going forward.

“Since the coming into force of EMIR, the authority has been in contact with various entities through different forms of supervisory engagements to ensure that they are compliant with the regulation, including accurate and timely reporting,” Mr Fenech said.

Furthermore, he highlighted that MFSA will continue to engage with the relevant stakeholders as part of a data-driven supervisory approach.

On his part, Chief Officer Supervision Christopher P. Buttigieg noted that truly achieving the aims of EMIR requires an ongoing effort by all the stakeholders involved. This should be done to ensure that data quality remains at the top of the agenda.

“The risks associated with over-the-counter derivative trading can only be mitigated by ensuring that the data being reported by the relevant counterparties is both timely and correct,” he added.

Meanwhile, Head of Capital Markets Supervision Lorraine Vella shared that the EU EMIR REFIT addresses the challenges and inefficiencies identified in the original EMIR framework, with the hope of “more robust and efficient financial market infrastructure in the EU.”

The full letter can be accessed here.