The FCA’s data-led approach is clear to see in a welcome update that sheds light on the regulator’s Markets Data Processor (MDP), which is described as a “source of regulatory sunshine that allows us to oversee the market…with dedicated software…to detect potential issues.”
The FCA’s MDP receives over 30 million transaction reports and over 100 million order reports a day which are then analysed for a variety of offences, including insider dealing and market manipulation. This surveillance effort is supplemented with Suspicious Transaction and Order Reports (STORs) received from market participants which averaged more than 90 per week last year and represented an increase of almost 15% on 2020.
Market abuse approach
In this update, the regulator highlighted the importance of the deterrence factor offered by transaction reporting and monitoring, explaining that ‘intensive scrutiny’ meant that participants are less likely to abuse markets if they know they are being watched.
The FCA gave an insight into its approach and powers to monitor, detect and prosecute market abuse as well as a general overview of its current case load. When the perpetrators of market abuse are more organised and operate across borders, the FCA continues to collaborate and exchange data and intelligence with regulators globally. The efforts of 90 FCA enforcement staff reinforced with specialist cyber, legal, intelligence and primary and secondary market oversight teams are focused on tackling market manipulation and insider dealing.
One common theme running through this update is the obvious importance of the FCA’s data-led approach to surveillance and regulation. It will therefore be interesting to see whether the FCA’s forthcoming MiFID transaction reporting consultation paper proposes to follow ESMA’s lead with the introduction of new data fields to assist with firm-based supervision and monitoring the compliance of conduct of business-related rules.
With the FCA’s data strategy being published in the coming months, prioritising the monitoring of firms’ more general trading and a broader range of activities through transaction-related data will require more granular information.
Simplification of reporting?
If the transaction reporting consultation paper is published before the full data strategy, it could be that ‘simplification’ and a focus on increased data quality is given priority over the data strategy in the short-term. Although, through the quality assurance testing we do at Kaizen, we can see that data quality is still very poor*, starting to incorporate the FCA’s data strategy into the MiFID transaction reporting consultation paper will bring it in line with the FCA’s strategy as a whole.
As misreporting can lead the regulator down blind alleys and cause market abuse and other offences to go undetected, we can see from this interestingly timed update, that accurate and complete transaction reporting is still of paramount importance to the FCA.
- For a conversation with Simon about the topics above or for help with your transaction reporting data quality please get in touch.
*Only 10% of transactions are successfully reported under MiFID II.