Transaction reporting was chief amongst concerns at today’s UK Finance MiFID II implementation conference, where Stephen Hanks from the FCA was keynote speaker.
At one of the first conferences since the BBA merged with other financial trade associations, Stephen Hanks spoke widely on the expected MiFID II implementation issues, focusing on four main areas of interest:
- The publication and content of the FCA policy document published 3 July
- Recent European Commission and ESMA activity
- Transaction reporting issues
- Some shared thoughts on how the FCA intends to act over next six months.
Policy document is technical not guidance
The publication of the 1000-page policy document had been accompanied by a loud sigh of relief within the FCA but left financial journalists scratching their heads on where to start! Stephen explained that documentation’s primary purpose should be seen as a technical exercise of translating EU legislation, of both the MiFID and non-MiFID variety, into the FCA handbook. There is no significant inclusion of guidance in the document as the FCA wishes to deliver this through their participation in ESMA’s efforts.
That said, Chapter 2 of the handbook outlines where the FCA is adding additional requirements over and above the EU legislation. The four main areas outlined by Stephen were:
- Policy and taping of corporate financials and discretionary managers
- Divergence with ESMA over the appropriate test
- Client classification.
FCA to provide clarity on issues before 3 January 2018
On the topic of the appropriate test, Stephen explained that the FCA has decided to ignore ESMA; a decision not taken lightly. Rather it is a decision taken based on the specific prevalence of UCITs and Investment trusts in the UK compared to the rest of Europe and as such, the FCA will continue to follow to advice previously provided by ESMA’s predecessor, CESR in 2010.
Over the coming months the FCA, with the European Commission (EC) and ESMA will be focusing on a number of issues to try and provide required clarity before go live on 3rd January 2018. On both share and derivative equivalence, expect further consultation between NCAs, ESMA, EC and the industry and subsequent publications of Q&As. . The topic of commodity limits is taking up considerable time and effort at the FCA with a focus on arriving at the appropriate level of limits. The FCA is placing reliance of ESMA guidelines on how entities should determine trading venue status but are taking wide and varied soundings from UK firms on whether they should be treated as a trading venue or a brokerage model.
FCA has significantly enhanced ability to detect data issues
Stephen made special reference to transaction reporting highlighting that Zen’s replacement Market Data Processor (MDP) went live with industry testing on the 3rd July with ARMs, to be followed swiftly with APAs and trading venues. He described transaction reporting as a “particular challenge” and recognised that there will “be serious challenges” but made it clear that the “FCA wanted to work with the industry”. That said he explained that MDP will have in-built business testing, similar to that run by Kaizen, to detect data quality issues. In short the FCA ability and capacity to identify data quality issues will be significantly enhanced with the introduction of functionality provided by MDP.
During the 200 days left to go for MiFID II go-live the message from the FCA was to take all reasonable steps to comply with the obligations, that the FCA recognised the material increase in complexity that MiFID II brings and that these two points will shape the supervisory environment in 2018. If firms do have significant or expect to have significant issues they should be flagged to the regulator as soon as possible and before go-live.