Are your transaction reports up to scratch? How to spot errors early and avoid hefty fines

14 December 2018

It’s been a year since MiFID II.
transaction reports

It’s not an exaggeration to say that transaction reporting was a major source of worry for many of us facing the new regime. But we got there. We gathered the data. We produced detailed files. We dealt with copious amounts of rejections from, first, the ARMs and then the FCA. There were still problems, mostly with the reference data supplied by ESMA, yet slowly but surely the number of errors and late transaction reports began to shrink, and reporting moved from project work to BAU.

The questions posed by the new regulation were many. Do we have all the information required? Where is it? How do we bring it all together? Even the first seemed impossible to answer. After all, who had dealt with Legal Entity Identifiers before? Who had concerned themselves with the National Insurance number of power of attorney holders? Even before figuring out how to process all this data, many of us were trawling for LEIs and NCIs from clients and colleagues who, quite understandably, did not share our urgency.

The question remained: are our transaction reports correct?

It was not a question many of us particularly wanted to answer! The effort required to get this over the line surely warranted a breather. Perhaps the Commission had foreseen such premature calls for rest when they inserted the following text into MiFIR:

“Investment firms must…take reasonable steps to verify the completeness, accuracy and timeliness of the transaction reports which were submitted on their behalf.”

In other words, reconciliations of your transaction reporting data are now a regulatory requirement. And it’s not an option to take your focus off MiFID II while a robust system for verifying the quality of your transaction reporting remains outstanding.

Spotting mistakes early on

If you have made a mistake, it is far better to discover it now than to find yourself breach reporting to the FCA deep into 2019 with your proverbial cap in hand. We may be at the end of our first whole year of MiFID II, but there is no doubt that the FCA will look more kindly on errors discovered and fixed now than if firms kick the can down road. Before long, “why did it take you so long to find this?” will be a more than legitimate question.

Having confidence in your reconciliation

A strong reconciliation is not only a means of improving your chances of a better relationship with the FCA, it is also a potential money saver. This is a particularly important point for firms who are avoiding taking the plunge on account of balance sheets still feeling the costly pain of MiFID II implementation. If you make a mistake with transaction reporting, the FCA do not merely expect a fix that looks to the future. Material errors will require back reporting – an exercise far more costly and painful than any reconciliation.

Looking at more than just data

The industry is now settling on an approach that packages reconciliation, completeness controls and accuracy testing. The reconciliation checks that the FCA has received the data produced by you; the completeness controls ensure that you have captured all transactions that are TOTV/uTOTV and nothing else; and the accuracy testing works to validate the quality of your reports. Do not make the mistake of thinking ARM validation checks satisfy your obligation – the ARMs and the FCA will both be quick to dismiss this as insufficient.

Getting transaction reporting right has been a gruelling process so far. But if you keep your eye on the ball, you could save both time and money.

How we can help

The fact remains that many firms lack the time and money to build their own solutions. At Bovill, our philosophy rests on two pillars:

  1. comprehensive health check
  2. periodic reconciliations and testing.

Our health check looks to find any structural weaknesses in your transaction reporting solution, while the reconciliations and testing delve deep into the data to check that your transaction reports are meeting the standard required. Whatever option you go for, implementing a reconciliation solution is a requirement, so don’t make the mistake of waiting.

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