The worst Christmas present I ever received was a jar of mustard. To be fair, it was a large jar and it did come from Fortnum and Mason, but it was still a jar of mustard. And I don’t like mustard. What on earth was going through their minds when they thought this dodgy coloured and foul tasting condiment would be a suitable festive gift?
However, there are worse Christmas presents, especially if your Secret Santa this year was the FCA and you received a letter asking you to explain numerous errors in your MiFID II transaction reports. Many firms fail to appreciate that the FCA Santa really does know if you’ve been naughty or nice with your transaction reporting. It has systems designed to find errors in transaction reports and you will not be alone if you have received a letter from the FCA (as 223 UK investment firms have so far been contacted to explain reporting errors).
Communications from the FCA can often cause alarm within firms, but they shouldn’t necessarily induce panic. The MiFID II transaction reporting requirements are extremely complex and we have discovered errors through the quality assurance testing we have performed for every firm. No NCA can sanction every firm when they find errors in their transaction report and nor do I think they would want to. However, they cannot perform their role of monitoring for market abuse unless they receive complete and accurate transaction reports. The UK FCA has now twice signaled in Market Watch newsletters that firms are making unacceptable errors in their transaction reports and its patience must be wearing thin. It is quite possible that they may be thinking of imposing further sanctions for transaction reporting breaches and, who knows, maybe there’s one going through the enforcement process as we speak.
Put the right controls in place
If you receive a less than cheery Christmas missive from the FCA, it is an opportune moment to consider whether you have adequate controls over your transaction reporting processes. We believe the FCA is far more likely to take a collaborative approach with firms if they can see that the firm is trying to do the ‘right thing’ – i.e. implementing the controls detailed in Article 15 of RTS 22. In particular, performing quality assurance testing and regular reconciliations of data within source systems with the reports sent to the FCA. If these controls are not in place, you’re far more likely to find yourself on Santa’s naughty step.
If you don’t know if your reporting’s bad or good, please speak to us at Kaizen. We have a full suite of quality assurance and reconciliation solutions that can ensure that you are good for goodness sake…