FCA urges immediate action for transaction reporting in no-deal Brexit

Bovill

The FCA has made it clear that they expect firms, trading venues and ARMs to ensure continued compliance with MiFID II transaction reporting by exit day.

A statement was published by the regulator on 1st February that outlined the powers the FCA has been granted by the Treasury in order to make preparations for a no-deal Brexit. The statement made clear that there are a number of areas where firms won’t be expected to make immediate preparation for a no-deal scenario, but it also highlighted certain areas where steps will need to be taken.

One of the areas listed as requiring attention is that of MiFID II transaction reporting. The FCA made it clear that they expect firms, trading venues and Approved Reporting Mechanisms (ARMs) to take “reasonable steps” to achieve continued compliance with the transaction reporting regime by exit day.

UK ‘FIRDS’ to replace ESMA reporting system

On their side of the planning fence, the FCA has built a UK Financial Instruments Reference Database System (FIRDS) to replace the existing ESMA system and the FCA will begin putting live production data into the FCA FIRDS from early March. This will enable the FCA to be sure of having a fully populated FIRDS by 29th March.

The FCA will also publish an extract of the ESMA data in the FCA FIRDS to account for the fact that the UK transaction reporting regime includes instruments traded in the EU27, regardless of whether they are also traded in the UK. The FCA have indicated that the system has been designed to work alongside the ESMA FIRDS in order to ensure that the change-over is as seamless as possible. The FCA system will also look and feel like the ESMA system on day one, notwithstanding slight differences in the data held and the search functionality.

Limited change to mechanics – but action needed

The ultimate goal of the FCA is to make sure that for firms used to MiFID II transaction reporting in the UK, there is very little change to the underlying mechanics of reporting or the reporting logic.

However, some organisations will need to take action to make sure that they’re ready:

  • UK trading venues
    These venues will need to be prepared to transaction report for transactions on their venues by EEA members (other than those operating through a UK branch). The reason for this is that the EEA member firms, which currently report to their home state in the EEA, will become 3rd country firms after 29th March.
  • EEA firms operating through a UK branch and using the temporary permission regime
    These firms will need to get ready to transaction report to the FCA from 29th March. If a firm is using an ARM that isn’t going to be operating under the temporary permission regime or isn’t connected to the FCA’s Market Data Processor (MDP) from 29th March, they will need to appoint a new ARM. Don’t forget it can take several weeks to appoint a new ARM, so if firms are going to have do so, they’ll need to act soon.
  • Firms that need to access the FCA FIRDS
    These organisations will need to connect to the FCA FIRDS publication tool. Remember that the tool will be available for testing from 21st February 2019.

While this last change shouldn’t impact trading venues and systematic internalisers, which are already required to submit data to their NCA for onward transmission to ESMA, reporting firms and ARMs will need to make sure that they are using the right reference data in their transaction reports. If they keep following ESMA’s list, UK-listed items may be missed, and under-reporting will become a major risk.

Firms must show they’ve taken reasonable steps to prepare

The FCA have indicated that their FIRDS will be available for testing by firms from 21st February. They have also stated that they understand that in some cases changes needed will be large and complex and for that reason, although there is no implementation period, they “will not take a strict liability approach and do not intend to take enforcement action against firms and other regulated entities for not meeting all requirements straight away”. However, they will expect firms to be able to show that they have taken reasonable steps to prepare and meet the new obligations by 29th March.

If firms can’t comply fully with the regime from 29th March, the FCA expect firms to back-report missing, incomplete or inaccurate transaction reports as soon as possible. The FCA are not shy about enforcing this requirement to back-report. Anyone under MiFID II transaction reporting should review what the FCA’s announcement means to their processes as soon as possible and take action.

Bovill’s MiFID II transaction reporting services

We help firms with every element of transaction reporting, from providing advice on initial set up, to a full assurance service including validating data through a partner technology service provider. We can help you review how Brexit will affect your approach to reporting. Get in touch to find out more.

Menu