In this article, we explore the costs of EMIR and MiFID II transaction reporting and provide with our recommendations on how to minimise the associated costs strategically.
Regulatory reforms such as MiFID II, MiFIR and EMIR RTS aim to reduce the likelihood of financial crises through increased market integrity, though they have come at a cost. While regulators were originally not expecting compliance in complete conformity with the new rules (“have taken sufficient steps to meet the new obligations by the start date” (Mark Steward, FCA)1), that honeymoon phase has now well and truly passed. Any firm that has not yet implemented the full scope of transaction reporting requirements should act quickly.
How can individual firms minimise the costs?
It is important to build efficiencies into systems so that costs can be minimised from the start. One way of doing this is to capitalise on huge advancements in data management and technology that allow automation and outsourcing in transaction reporting.
The costs around EMIR and MiFIR transaction reporting involve firstly, determining your reporting obligations – requiring allocation of internal resources and/or engagement of external consultants to analyse the application of the regulations to your firm. Where you are potentially subject to multiple reporting regimes or operate across jurisdictions, the analysis may become complex. Different costs apply to reporting directly to an approved reporting mechanism (“ARM”) or trade repository (“TR”) compared with reporting through a third-party reporting solution.
1. The traditional approach: Reporting directly
• Internal Resources: Meeting the reporting requirements may require re-training existing staff or hiring additional staff. The former can divert human resources from existing projects and the latter adds to employment expenses.
• Infrastructure: Firms need to spend time and resources to develop ways of generating transaction reports in the correct formats. This in addition to the procurement and storage of all the required data.
• TR /ARM Fees: Firms can directly engage with an ARM for MiFIR transaction reporting or a TR for EMIR reporting. Charges are generally a fixed monthly or annual account fee plus a per-transaction charge.
2. Reporting through a delegated third party
Outsourcing your reporting obligations to a specialised trade reporting provider can result in the following cost savings:
• Free up your internal resources and allow your team to focus on the core offering;
• Reduce the need to obtain and pay for external advice; and
• Limit the infrastructure expenditure you incur.
At TRAction Fintech, we include consulting in our fees so that you can be confident in your reporting obligations without engaging expensive external consultants. We also have IT specialists who can work with your IT team to adjust your systems to be reporting-ready, again without additional charge. Best of all, we don’t add these charges to our base reporting offering. Instead, we charge you the same fees (or less) as you would incur if reporting directly to an ARM or TR.
A major cost – Transaction reporting
A representative of the US bank Brown Brothers Harriman told the Financial Times that “complying with transaction reporting requirements will require significant investment”2. Transaction reporting requirements for MiFIR have greatly increased in scope: OTC derivatives have been brought into the scope of reporting, the number of fields has gone from 23 to 65, a wider range of entity and product identifiers is required and LEIs of clients will need to be reported – all on a T+1 basis.
Costs include implementation as well as ongoing compliance expenditure. In 2017, it was expected that MiFID II would cost the finance industry at least €2.5 billion for its implementation.3
The costs of implementation and of ongoing compliance don’t just affect the books, but also operations. With human resources and organisational focus shifting away from business development, product enhancement and other key areas, the focus on regulatory compliance has an impact on enterprise and growth. This is particularly important for small fund managers, small banks and brokers, which typically have smaller regulatory teams that proportionately bear more costs. The high cost of ensuring compliance also means that the incidence of the costs cannot fall solely on clients and counterparties. The remaining cost will indeed have an impact on ratios and therefore it’s important to determine how the costs can be minimised.
TRAction Fintech helps clients to minimse trade reporting costs. If you’d like to reduce your costs, contact us for our pricing structure.
1“A Better View”, Speech by Mark Steward, Director of Enforcement and Market Oversight at the FCA, delivered at the AFME European Compliance and Legal Conference 2017.
2Attracta Mooney “€2.5bn cost of Mifid II rattles asset managers” Financial Times, 27 January 2017.
3Attracta Mooney “€2.5bn cost of Mifid II rattles asset managers” Financial Times, 27 January 2017.
Quinn is co-CEO and founder of TRAction and focuses on assisting clients in Europe, Asia and Australia to meet their regulatory requirements with trade and transaction reporting solutions as well as development of the best execution platform. With a background in IT, Quinn started in the financial markets as IT Manager for City Index. He then co-founded and worked as a General Manager at one of Australia’s largest margin FX and CFD providers. Quinn has provided educational sessions to Australia’s regulatory bodies in relation to operational aspects of derivatives and trading platforms.