The UK’s FCA recently released Market Watch 65 identifies 5 common errors relating to MiFIR transaction reporting.
1. Unreported transaction on Non-EEA listed Index with EEA Trading Venue components
“Some firms have misinterpreted these requirements and failed to submit transaction reports for transactions executed in non-EEA listed indices or baskets composed of one or more financial instruments admitted to trading on an EEA trading venue. We expect firms to have arrangements in place to determine when an instrument is in scope for transaction reporting.” – FCA
The 3 steps below are a great guide to what makes a transaction reportable:
| Traditional Approach (Reporting Directly) | Efficient Approach (Reporting through a Delegated Third-party | |
|---|---|---|
| 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. | Free up your internal resources and allow your team to focus on delivering your core offering/service. |
| 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. | Limit the infrastructure expenditure you incur. We have IT specialists who can work with your IT team to adjust your systems to be reporting-ready, again without additional charge. |
| ARM/TR Fees | Firms can directly engage with an ARM or a TR for MiFIR, EMIR and SFTR. Charges are generally a fixed monthly or annual account fee plus a per-transaction charge. | We charge you the similar fees as you would incur if reporting directly to a TR or ARM. What’s more, we provide complimentary advisory and consulting services to unwind the complexity of the EMIR, MiFIR/MiFID II and SFTR regimes for you and answer all your regulatory questions. |
If the answer to any of these questions is yes, the financial instruments you are dealing with are reportable under MiFIR.
2. Field 47 – Underlying Instrument
Underlying instrument means immediate underlying NOT ultimate underlying. The ISIN of the underlying should be reported.
Example:
| Themes | Examples of issues | Recommendations |
|---|---|---|
| Control framework | • Poorly designed reconciliation processes. • Conducting reconciliation on specific fields only or irregularly. • Controls not reviewed or updated when processes evolve. • Firms excluding services/data from third parties from their control and reconciliation framework – causing gaps in monitoring and limits firms identifying issues caused externally. | • Firms to understand the end-to-end transaction reporting process. • Ensuring arrangements are in place to ensure transaction reports are complete and accurate – including having a control framework falling under the firm’s transaction reporting process. |
| Reporting process and logic design | • Incorrect interpretation of regulatory requirements and development of reporting logic e.g. input from first and second lines of defence within entities are limited in the design process. Unclear implementation of the transaction reporting process | • The FCA advised firms to be aware of Article 22(2)(b) of the MiFID Org Regulation – firms are to set up and maintain a permanent and effective compliance function that is independent and responsible in advising/assisting the persons responsible for carrying out investment services and activities to comply with the firm’s (UK) obligations. • Consideration of ad-hoc resource assignment and unclear deliverables which can lead to manual processes that cause further reporting issues. |
| Change management | • Poor change related practice. • Insufficient documentation for change management e.g. key decision records. • Change processes are outsourced to third parties and there is inadequate monitoring of the third party’s deliverables. • Absence of transaction reporting subject matter expertise (SME) within firm. • Staff turnover and absences – particularly where there are key staff dependencies. | • Use of business analysis and systems and data mapping before regulatory changes commence. • Creating new business and function requirements and reporting systems including pre- and post-deployment testing and sign-off. • Keeping records of key decisions. • Better oversight of third parties and management of information. • Have clearer policies and procedures in dealing with absences of key staff members and overall, on change management. |
| Data governance | • Collection of data in their reporting processes from various sources – can lead to fragmented data owners, data access and storage issues, procedural inefficiencies and increasing error, for example: o Encrypted data flowing from systems holding personal information and resulting in national identifiers to be misused and unidentifiable. o Incorrect data being sourced from inaccurate or outdated mapping or data tables. • Insufficient documentation on data lineage – can undermine data integrity used in transaction reporting. • Poor record keeping – can undermine a firm’s ability to audit records and correct historical transactions. | • Removal of disconnect between data management and regulatory reporting e.g. having data dictionaries and data lineage documents that explain how data elements are used and where necessary, upgraded. • Better identification of source data – will improve the identifiability of reporting breaks and remove business flow blind-spots. • Better record keeping and procedures in place. • Adequate security and change management of personal information. |
| Governance, oversight and resourcing | • Prioritsation of financial risk management at the expense of non-financial risk – leads to weaknesses in the measurement/management of risks associated with transaction reporting. • Lack of management information processes can create monitoring issues for senior management eg. senior board members may be prevented from understanding the regulation/operational risks from reporting issues. | • Firms to understand that transaction reporting is an operational, compliance and reputational risk. • Having in place a formal Compliance Risk Assessment process and SME providing guidance on transaction reporting matters. • Firms to have clear organisational structures, reporting lines, functions and responsibilities. • Managing exceptions and report transactions on time and not |
3. Field 3 – Trading venue transaction ID code
The FCA reminded firms that it expects trading venue transaction identification code (TVTICs) to be reported when a transaction is executed on a trading venue (i.e. not OTC).
The TVTICs are generated by trading venues and disseminated to both buying and selling parties.
Example:
| MIFIR and EMIR | EU: ESMA’s handling of the issue centres around the definition of a business day rather than creating a new rule set for any regional holidays. Business days are all weekdays except for Saturdays and Sundays and except for all official national holidays within the EU member state of the National Competent Authority (NCA) to whom the transaction report is submitted (5.7.2.1.2). UK: FCA requires reporting to be submitted on a working day, which is any day other than a Saturday, a Sunday, Christmas Day, Good Friday or a day which is a bank holiday under the Banking and Financial Dealings Act 1971. |
| SFTR | EU: In line with MiFIR and EMIR guidelines, a similar approach is applied for SFTR. An entity that is established in an EU member state with a public holiday on 2 Jan 2024, i.e. it is not a working day, should report by 3 Jan 2024 the SFTs concluded on or after 29 Dec 2023 Article 33(2)(a)(i). UK: Transactions are reportable any day on which banks in the UK are open for general business, with the exception of public holidays. This includes weekdays from Monday to Friday, but excludes weekends and bank holidays. |
| ASIC | ASIC require that reporting is submitted by the end of the second ‘Business Day’ (Rule 2.2.3) and defines a Business Day as ‘a day that is not a Saturday, a Sunday, or a public holiday or bank holiday in the Relevant Jurisdiction’. There is a further definition of ‘Relevant Jurisdiction’ which needs to be considered by firms as it changes according to a number of factors and thus each firm is impacted differently. Due to the T+2 requirement under the ASIC rules, the operation of public holiday rules is slightly different to other regimes which have a T+1 requirement. |
| MAS | MAS handle public holidays by outlining their definition of a ‘Business Day’. As per their regulations, a business day is ‘anything other than a Saturday, Sunday or public holiday’. Note, similar to ASIC, MAS also has a T+2 requirement which means the reporting will take place on the second Business Day. |
| Canada | A ‘business day’ defined as a day other than Saturday, Sunday and any statutory holiday in the relevant District. |
4. Fields 8 and 17 – Country of branch fields
These fields should only be populated where the buyer or seller was a client of an investment firm.
The FCA clarified that these fields refer to the country of the branch of the investment firm that the client executed with, not the client’s location or nationality.
Example:
| Regions | Public Holidays | Reporting Timeframe | Transactions executed on | Submission Date |
|---|---|---|---|---|
| UK Firms | 25 December 2024 26 December 2024 1 January 2025 | T + 1 | 24 December 2024 | On or before 27 December 2024 |
| 31 December 2024 | On or before 2 January 2025 |
|||
| EU Firms | The Christmas holidays differ by country and not all European countries have Boxing Day (26 December) as a public holiday. Make sure you check your local calendars and any specific requirements of your NCA. | T + 1 | 24 December 2024 | This could be either 26 or 27 December 2024 so make sure you check ahead with your NCA. |
| 31 December 2024 | On or before 2 January 2025 |
|||
| ASIC Firms | 25 December 2024 26 December 2024 1 January 2025 | T + 2 | 24 December 2024 | On or before 30 December 2024 |
| 31 December 2024 | On or before 3 January 2025 |
|||
| MAS Firms | 25 December 2024 1 January 2025 | T + 2 | 24 December 2024 | On or before 27 December 2024 |
| 31 December 2024 | On or before 3 January 2025 |
|||
| Canada Firms | 25 December 2024 26 December 2024 1 January 2025 | T + 1 | 24 December 2024 | On or before 27 December 2024 |
| 31 December 2024 | On or before 2 January 2025 |
5. Systems and Controls – downloading from FCA
The FCA emphasised that reconciliation of the transaction reports (handback files) against your raw data is important. The acceptance of transaction reports by the FCA does not mean that the data is accurate. The FCA’s validation rules are not designed to identify all potential errors and omissions.
“We are encouraged by the number of data extract requests being made by firms for the purposes of reconciling their transaction reports with front office records” – FCA
The FCA also noted there is a good number of firms downloading transaction reports from the FCA Portal for reconciliation purposes. This was both an encouragement and gentle nudge to firms not currently doing so.
If you are worried about any of the above points or need help with your MiFIR transaction reporting, contact us.
