Central Bank of Ireland imposes first fine under EMIR Regulations, highlighting the importance of timely data reporting

The Central Bank of Ireland (CBI) has reprimanded and fined GlobalReach Multi-Strategy ICAV (ICAV), a UCITS ICAV, €192,500 pursuant to the European Union (European Markets Infrastructure) Regulations 2014 (EMIR Regulations) for failure to comply with its reporting obligation under Article 9(1) of the European Markets Infrastructure Regulation (EMIR). 

At the time of the contravention, the ICAV was required to report details of all derivative contracts to a registered trade repository no later than the working day following the conclusion of each contract. However, one of the ICAV’s sub-funds (Sub-Fund) failed to report 200,640 derivative trades entered between January 2018 and May 2020, in breach of Article 9(1) of EMIR.

Not only is this the CBI’s first enforcement case under the EMIR Regulations, it is also the first time that the CBI has imposed a monetary penalty on a fund. The case highlights the importance that the CBI places on timely and accurate data reporting, and its expectations around effective oversight of delegation, with the CBI noting that “these delegations did not remove the ICAV’s legal responsibility to comply with its regulatory obligations or the Board’s ultimate responsibility for all activities of the ICAV.”

Facts and findings

In April 2016, the board of the ICAV appointed a management company (Management Company) to act as its manager. With the agreement of the ICAV, the Management Company delegated responsibility for investment management, including the ICAV’s reporting obligation under Article 9(1) of EMIR, to an investment manager (Investment Manager).

Following the CBI’s 2019 letter to industry on EMIR reporting compliance (Industry Letter), the ICAV’s board requested the Management Company to review EMIR reporting compliance. The Management Company then periodically confirmed compliance with the EMIR reporting requirements to the ICAV up until in the end of April 2020. However, in May 2020 the Investment Manager informed the ICAV and the Management Company that, prior to the Investment Manager entering into delegated EMIR reporting agreements in May 2020, its delegated reporting agreements were not comprehensive and there had been a failure to report approximately 21,000 of the Sub-Fund’s derivative trades to a trade repository.

Following internal investigation and remedial action in February 2021, a further material number of late reports were submitted on behalf of the Sub-Fund to a trade repository. The ICAV notified the CBI of the failure to report the trades to a trade depository in March 2021.

Failure to comply with EMIR reporting requirements constitutes a prescribed contravention for the purposes of the EMIR Regulations. The CBI found the ICAV’s delay in reporting the failure to the CBI to be an aggravating factor in reaching its penalty decision.

Other factors relevant to the CBI’s decision were the significant departure from the standard required under EMIR and the extent and duration of the contravention, which related to 200,640 affected derivative trades between January 2018 and May 2020.

The CBI also took into account the ICAV’s financial position and the need to impose a proportionate level of penalty considering the nature and seriousness of the contravention and the size of the ICAV’s operations. The CBI also considered that the ICAV provided the expected level of cooperation and noted the commitment from the ICAV’s board to ensure that investors are not financially disadvantaged by the financial penalty. The fine was reduced by 30% to €192,500 as allowed for under the EMIR Regulations Settlement Scheme.

The CBI has confirmed that the ICAV has remediated the failing identified during its investigation and that the board of the ICAV has confirmed that the remediation was at no expense to the ICAV and/or its investors.

EMIR Refit

It is worth noting that since changes were made to EMIR by the EMIR Refit Regulation, which took effect in June 2020, the UCITS management company or AIFM, rather than the fund, is primarily responsible and liable for reporting the details of OTC derivative contracts (but not ETD) to which the fund is a counterparty, as well as ensuring   that the details reported are accurate.

CBI expectations for data reporting

Data reporting has been and will continue to be a key focus area for the CBI. In its Securities Markets Risk Outlook Report (February 2022), the CBI communicated that firms can expect increased engagement with the CBI in respect of data quality issues and this engagement may take the form of supervisory action where it has been identified that firms do not have sufficient frameworks in place.

Similarly, in its Securities and Markets Risk Outlook Report (March 2023), the CBI set out its expectations, in relation to all regulatory data sets (including EMIR), for financial service providers to:

• submit accurate data on a timely basis in line with their obligations
• have appropriate oversight of data reporting from board level down (including where outsourced)
• ensure escalation channels are in place to promptly address data reporting issues
• engage with the CBI as soon as possible after any data issues are identified (failure to do so may warrant supervisory intervention up to and including enforcement action).

In its commentary, the CBI emphasises the importance of having appropriate oversight of EMIR data reporting from board level down, including where data reporting is delegated or outsourced, and that delegation must be appropriately managed to avoid confusion between the delegates as to their respective reporting responsibilities. In this regard, counterparties to OTC derivative transactions should also note the CBI’s findings and expectations set out in its Industry Letter, including that compliance with EMIR reporting should be a standing agenda item for all board meetings. The CBI’s commentary also reminds firms to bring material failures to its attention at the earliest opportunity and to act expediently to address identified issues. Since primary responsibility for EMIR reporting is now with the UCITS management company or AIFM, we consider that these obligations and CBI recommendations are of the most relevance to them.

Future changes

New requirements under EMIR Refit will apply from 29 April 2024 for entities responsible for reporting under EMIR (this includes a UCITS management company or AIFM) to notify its national competent authority (NCA), and if different, the NCA of the reporting counterparty (UCITS/AIF) of certain types of significant misreporting errors or omissions as soon as it becomes aware of them. ESMA has also published Final Report Guidelines for reporting under EMIR that will apply from this date.

Conclusion

This CBI enforcement action shows the CBI’s willingness to bring enforcement actions against types of regulated entities which have not previously been the focus of enforcement. The action also serves to emphasise to all entities responsible for data reporting of the importance of accurate and timely data reporting (including under EMIR, reporting of securities financing transactions under SFTR and transaction reporting under MiFIR) and of timely engagement with the CBI when data issues are identified. It also stresses the need for appropriate and ongoing oversight of any delegated or outsourced reporting arrangements, as compliance responsibility will remain with the delegating firm.

For further information, please contact Dario Dagostino, Partner, Mark Devane, Partner, Laura Corrigan, Senior Associate, Chris Bergin, Senior Associate, Sarah Lee, Senior Knowledge Lawyer, Yvonne McGonigle, Senior Knowledge Lawyer or your usual ALG contact.

Date published: 12 December 2023