FCA warns on further transaction reporting errors in Market Watch 62

In its latest Market Watch newsletter, the FCA has highlighted further errors it has detected in firms’ MiFIR transaction reporting. While some of these errors reflect the complexity of reporting requirements, others are very basic and must be testing the patience of the regulator.

First, the basics…

Starting with the most basic of errors – some firms are still failing to populate their own LEI in the ‘executing entity’ field where they are executing a transaction. This betrays a fundamental misunderstanding of the transaction reporting requirements and highlights the need for training to be an essential element in firms’ systems and controls framework.

Another basic mistake is in the incorrect use of national identifiers for buyer/sellers (and their decision makers), ‘investment decision maker within firm’ and ‘person responsible for execution within the firm’. In particular, the FCA has detected use of the second or third priority identifier when the first priority identifier is available. These fields are absolutely essential for market abuse detection and obviously the regulators are going to be particularly unhappy with incorrect population. Failures with these fields could be the result of a misinterpretation of the requirement, or could result from the inadequate collection of data from clients and employees.

The more complex..

Moving to some of the more complex requirements, the FCA has highlighted issues with the buyer/seller decision maker, misuse of the aggregate client identifier (INTC) and use of default values in the ‘waiver indicator’, short selling indicator’, OTC post-trading Indicator’, and ‘commodity derivative indicator’.

There is also an important message for reporting buy-side scenarios – the FCA has detected issues where the buyer/seller decision maker hasn’t been populated with the fund management company where appropriate. Additionally, the FCA has discovered instances of the broker identifying fund in the buyer/seller identifier fields when the fund management company is expected (i.e. where transmission within the definition of RTS 22, Article 4 has not taken place).

To summarise…

  • The FCA is still very far from happy with the quality of MiFIR transaction reports
  • In highlighting these errors, the FCA removes any defence of ‘ignorance’ for firms
  • The FCA is increasing the sophistication of its data quality procedures and may be implementing cross-entity testing
  • The FCA has again stressed the need for robust methods and arrangements for reporting transactions, including reconciliation of front-office trading records against data provided by the FCA.

Our advice…

  • Validations do not detect all reporting errors. Only quality assurance testing of the accuracy of your transaction reporting data will help you stay one step ahead of the FCA – get on the front foot and discover any reporting issues before the regulator does
  • To meet the requirements of RTS 22, Article 15 you must reconcile the data in your front office systems to that reported to the regulator 
  • Training on the reporting obligations will help ensure you haven’t misinterpreted any of the MiFIR reporting requirements.

And of course, we can’t help but point out that detecting transaction reporting errors is why we here at Kaizen exist! Our ReportShield™ assurance services are designed to help you meet all the requirements of MiFIR transaction reporting. Please contact us to learn more about how we can get your reporting accurate and complete. 

Further reading: Market Watch 62