The effects of Brexit on MiFID II post-trade transparency reporting

“There are known knowns. These are things we know that we know. There are known unknowns. That is to say, there are things that we know we don’t know. But there are also unknown unknowns. There are things we don’t know we don’t know.” – Donald Rumsfeld (Feb, 2002).

Brexit…the ‘known unknown’ of everyone’s lives (at least for those of us in the UK) and not just in financial services but across all sectors of life.

MiFID II has not escaped Brexit either.  Let’s call it BRiFID!  My colleague David Nowell has covered in detail the effects of Brexit on EMIR trade reporting & MiFIR transaction reporting but in this blog, I want to delve into the effects on post-trade transparency reporting. 

Kaizen announced at the beginning of December 2018 that we were to offer post-trade transparency reporting testing following on from our established MiFID II transaction reporting testing service. The need and demand for MiFIR completeness and accuracy across regimes has become very relevant, highlighted even further by the recent penalty announcements from the UK regulator, the FCA:

The FCA’s Final Notice on 19 March for the first of this year’s transaction reporting fines, stated:

“Firms must take reasonable steps to ensure the accuracy and completeness of the transaction reports that they submit to the Authority. One way that firms can help to achieve this is by having controls in place to reconcile the completeness and accuracy of their transaction reporting process.”

The most recent fines were admittedly for transaction reporting inaccuracies under MiFID I, and MiFID II sanctions are not yet known or been broadcast. But it is only a matter of time before the next firm is penalised and this could well be for post-trade reporting inaccuracies (known unknowns). Stephen Hanks, Head of Markets Policy at the FCA, mentioned at an conference on 16th April that, “poor data quality is still being sent to APAs and that the FCA will continue to work with investment firms to improve quality as a priority”.

What Now?

MiFID II transaction reporting has clearly taken a regulatory priority since go-live but post-trade transparency reporting, its just-as-important sibling, is just as key. The past year’s Level 3 Q&As have brought clarity to previous ambiguous regulatory text so firms should now have a greater understanding of their reporting obligation but do they have the testing and controls in place?

Stephen Hanks stated; “There are still issues we see in reports and we are particularly disappointed to still be seeing errors in reports which would have been errors under MiFID I, never mind MiFID II.”

Really! Why? When??

Yes, in amongst the turmoil of BRiFID, investment firms and regulated markets have a near to real-time responsibility to make sure their RTS 1 equity-like and RTS 2 non-equity trades are reported within one minute and 15 minutes respectively (reducing to five minutes by 2021). The responsibility wording is key. Firms may think they do not have a reporting responsibility or they may have asked their brokers to report on their behalf but have firms put in place the correct control framework to prove this if the regulators come calling?  Could this highlight a firm’s unknown unknowns?

MiFID II has now been live for almost 15 months. With Brexit there is the very real situation that post-trade transparency reporting will need to be directed to either the EU or UK APA as well as liquidity shifting away from the main markets and the impact of ESMA’s Trading Obligation views.  This is a good time to make sure you’re also compliant with post-trade transparency reporting as well as transaction reporting. 

What next?

If you have any doubts about whether your post-trade transparency reporting and controls are up to the required standard, we can help. We have a proven track record in helping firms tackle their regulatory reporting issues and risks head on – and helping them to avoid censure. Our ReportShield™ quality assurance services provide everything you need for reporting assurance including a bespoke control framework, quality assurance testing of all fields on all reports, reference data testing, reconciliation and completeness checks and training. Contact us to find out more.