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MiFID II Transaction Reporting: Mind the Gap

As the dust settles on the MiFID II transaction reporting go-live, financial services companies are taking stock of solutions rushed into production to meet the 2018 deadline.  The picture is not as rosy as they might have hoped – transaction reporting is generally not as complete, timely or accurate as envisaged.

Some of the issues are visible in the data the FCA receives.  An average of 3% of transaction reporting messages were rejected by the FCA between Jan-May 2018, with a high-watermark of nearly 5% in one month[1]. Top rejection reasons fall into categories of instrument reference data, message content and duplication (including cancellations received for unreported trades).  However, not all reporting failures result in rejections; many pass validation testing, or reporting may be missed altogether.  Rejections are probably the tip of the iceberg.

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Historically, the FCA have taken into consideration the effort made by companies to meet their MiFID II reporting obligations; however, market perception is that this stance is changing, with increasing focus on complying with the new requirements.

There are broadly 6 ways in which transaction reporting might be deficient:

  • The in-house solution implements an interpretation of the rules which differs from the emerging standards
  • Poorly implemented rules, resulting in mis-classification or mis-representation of the transactions
  • Poor quality data which causes rules to be misapplied or trades to be missed
  • The new transaction reporting platforms themselves may be unreliable/unavailable
  • Brittle front-to-back process chains, where many systems are required to work properly to deliver in time
  • Governance and control gaps in the target operating model, leading to mis-reporting and exceptions

Regulators are expected to start raising the bar on the quality of transaction reporting. They are looking at the data but have not acted yet.  It’s not clear whether the next steps will be clarification in the form of guidance notes or digging into the data and seeking punitive action to drive up quality.

Many companies suspect there are issues with their solutions, although most do not yet have a forensic study to back up this impression.

Now is the lull after the storm.  It is a good time for a front-to-back review of the transaction reporting solution processes and technology; ensure the vulnerabilities in the report generation chain are understood and managed, and that quality of output is good enough to meet rising expectations in the future.

 

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[1] Source – minutes of FCA transaction reporting forum 2018


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The author

Tim Jennings

Tim Jennings

Associate Partner, London

Tim works in Citihub Consulting’s Business Transformation practice, focusing on setting and executing strategically aligned business change for capital markets firms. He has 20+ years’ experience in capital markets, having worked in both business-focused and technology teams including analysis, development and support leadership.

tim.jennings@citihub.com