Trade and transaction reporting: Perfect storm or opportunity knocking?

Matthew Chapman, ACA Compliance

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By Matthew Chapman (pictured), Director, ACA Compliance Group – Geopolitical change and uncertainty, regulatory sabre-rattling and industry shake-ups have combined to create a perfect storm for many financial services firms when it comes to their trade and transaction reporting obligations under MiFIR, EMIR and SFTR.

Most UK and EU-regulated firms find themselves subject to at least one regulatory reporting regime and so will be forgiven for feeling the pressure when it comes to ensuring complete and accurate reporting in the context of:

  1. Brexit: The end of year transition period is looming. This means many firms globally need to adapt their business models and regulatory registration arrangements to continue operating within the UK and accessing EU markets. From an EMIR and SFTR perspective the UK becoming a ‘third country’ will require firms to think carefully about how they classify their funds and clients and ensure that both new and historic reports are reported or transferred to the correct trade repositories. UK AIFMs and ManCos face the additional challenge of classifying their EU-domiciled funds under both the UK and EU regimes, with the potential for dual reporting requirements.
     
  2. Abide/CME closure: On 30 November 2020, CME will cease to operate its Nex/Abide regulatory reporting platforms. The FCA made it clear in Market Watch 65 that it expects reporting to continue uninterrupted, so many firms have been under pressure to identify and move to an alternative regulatory reporting platform or reporting model. Those firms who have not yet assessed the quality of their historic reports are running out of time to correct them via Abide, and so should ensure that their appointed replacement will accommodate corrections in the future.
     
  3. Increasing regulatory pressure: The regulators are showing no signs of letting up when it comes to their vision for clean, orderly and transparent markets. The FCA’s Market Watch 65 reiterated the regulator’s expectation that firms “review their transaction reports to verify their completeness and accuracy” and yet again reminded firms that they “should not assume a transaction report was accurate because it was accepted by the FCA.” In the face of persistent data quality issues, the regulator has underlined the “fundamental” importance of the quality of reports for market abuse surveillance.

Added to the ESRB’s response to ESMA’s Consultation Paper on EMIR reporting that “it is now time for both reporting entities and trade repositories to make substantial progress [on resolving substantial data quality issues],” and it seems that regulatory patience is wearing thin.

  1. Repeated reporting errors: Little wonder that regulatory rhetoric is escalating when 100% of firms that we analysed with our ACA Regulatory Reporting Monitoring & Assurance Support (ARRMA) service have errors in their reporting. With a 100% error rate (i.e. all of a firm’s reports found to contain an error) being common and reports typically featuring multiple distinct error types, the regulatory concern is understandable. What’s more, many firms continue to be in breach (and allowing errors to go unnoticed) by not incorporating market data processor (MDP) data in their MiFIR transaction reporting monitoring.

This perfect storm results in an environment of time pressure, uncertainty, unidentified problems, and regulatory enforcement exposure. The FCA has identified improved regulatory reporting as one of its supervisory priorities and has previously levied fines of varying sizes totalling more than £130 million for reporting errors or omissions under MIFID and EMIR (with almost £62 million levied on just two firms in 2019 alone).

To prevent this storm from becoming destructive, it’s vital that firms identify failings in the completeness, accuracy, and timeliness of their trade and transaction reports. There is a common misconception among reporting firms that as long as reports are being submitted and validation errors are being cleared, then everything is as it should be. But as noted above and by the FCA on repeated occasions, validation errors are only part of the story – and the easy part at that. Such checks might identify whether a field has been populated in the wrong format, but they invariably won’t identify if the value is wrong. Accurate reporting ─ which is to say the submission of reports which not only pass validation but also fully and faithfully reflect the firm’s activities and the nature of the transaction in question ─ remains elusive for many firms, many of which remain blissfully unaware of the problems growing silently beneath their feet.

The prompt identification of errors can significantly reduce the cost and reputational risk from regulatory scrutiny and enforcement as well as the operational burden of re-reporting.

Against this backdrop of complexity, change, regulatory pressure and uncertainty now is the ideal time to wipe the slate clean by getting on top of reporting quality before new processes and providers are fully implemented. Firms otherwise risk repeating their mistakes.

Complimentary review: 

ACA is offering a complimentary one-time ARRMA reporting analysis to help you identify the percentage of trade and transaction reports featuring an error. This provides an independent overview of the health of a reporting framework and includes a summary report identifying, among other things, the percentage of reports submitted that include an error.  If interested click here or contact ACA’s trade and transaction reporting team at +44 (0)20 7042 0500.

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