EMIR Enforcement Action

Background

The Central Bank of Ireland (the “Central Bank”) announced on 28 November 2023 that it has fined GlobalReach Multi-Strategy ICAV (the “ICAV”), a UCITS investment fund, €192,500 for breach of its reporting obligation under Article 9(1) of EMIR¹ arising from an admitted failure to report to a trade repository 200,640 derivative trades entered into in respect of one of its sub-funds (the “Relevant Sub-Fund”).  The fine was imposed pursuant to Ireland’s European Union (European Markets Infrastructure) Regulations 2014, as amended, (the “Irish EMIR Regulations”), which were made for the purpose of giving full effect to EMIR.

As the first enforcement action taken by the Central Bank under the Irish EMIR Regulations, and the first monetary penalty imposed by the Central Bank on an investment fund, this highlights the importance placed by the Central Bank on timely and accurate data reporting, and adequate monitoring of delegates, by regulated financial entities.

At the time of the non-compliance (January 2018 to May 2020) the ICAV, acting in respect of the Relevant Sub-Fund, was subject to the EMIR reporting obligation in respect of derivative contracts entered into by it.

The position is now different as, since the taking effect on 18 June 2020 of certain amendments made to EMIR by EMIR Refit², the EMIR reporting obligation is, with respect to “OTC derivatives contracts” (within the meaning of EMIR) transacted by a UCITS or AIF, now imposed on the relevant UCITS management company or AIFM, respectively (see further here).  Although the Central Bank’s announcement refers to the “ultimate responsibility for all activities of the ICAV” sitting with the board of directors of the ICAV, we do not believe that should be read as indicating a Central Bank expectation that the board of a UCITS or AIF should accept responsibility for ensuring compliance with obligations imposed by legislation on a management company.

Earlier guidance

The Central Bank has from time to time issued guidance regarding compliance by in scope entities with the EMIR reporting obligation and has in particular flagged the importance of:

• ensuring the completeness and accuracy of reports;

• monitoring the activities of delegates to which an entity subject to the reporting obligation has delegated the reporting function, to ensure full compliance is achieved; and

• EMIR reporting compliance being a standing item at board meetings,

(see our briefing on the Central Bank’s 20 September 2019 guidance here).  See also the Central Bank’s comments on data reporting more generally in its 2 March 2023 Securities and Markets Risk Outlook Report, where it again emphasised these issues (see here).

Reiteration of Central Bank expectations

In announcing this fine, the Central Bank has reiterated the importance of data quality and EMIR reporting and the need for appropriate oversight of data reporting from board level down, including where data reporting is delegated or outsourced.  It has advised that compliance by the industry with data reporting obligations will continue to be an area of focus for the Central Bank. 

This is a timely warning, given that changes to the EMIR reporting rules are due to take effect from 29 April 2024³.  Once those changes take effect, outstanding derivative transactions must be re-reported in accordance with the new data reporting fields within 180 calendar days of the changes taking effect (or if earlier, in any earlier report of the relevant transaction made due to a modification of its terms). 

The Central Bank has also emphasised the importance of bringing material failures to its attention at the earliest opportunity and acting expediently to address identified issues. In this case the non-compliance was identified by the ICAV following certain reviews of EMIR delegated reporting arrangements prompted by the Central Bank’s 20 September 2019 guidance, which reviews also identified confusion among delegates regarding the reporting required to be undertaken and by whom it was to be undertaken. However, the non-compliance was only confirmed to the Central Bank after it identified and queried bulk late reports effected as part of the related remediation.

The importance of early engagement with the Central Bank will be reinforced once the new EMIR reporting rules referred to above take effect.  They include an express requirement⁴ for an entity that is in scope for the EMIR reporting obligation to notify its EMIR national competent authority (and, if different, the EMIR national competent authority of the reporting counterparty) of certain types of material errors or omissions in its reporting, as soon as it becomes aware of them.  The types of errors and omissions encompassed by this are those of a particularly significant nature and include any misreporting caused by flaws in the reporting systems that would affect a significant number of reports.

Take-away

All entities subject to regulatory reporting obligations – whether arising under EMIR or other regimes such as SFTR and MiFIR – should review their processes and procedures for data reporting, including oversight of any related outsourcing of the reporting function, to ensure that they are sufficiently comprehensive and robust to meet the Central Bank’s expectations in this regard.