MiFID II continues to loom over the investment industry. While it’s been more than two years since its inception expanded the scope of transaction reporting, the rules remain a key priority for regulators.
With regulators taking a firm view on those falling short of their MiFID II requirements, managers can ill-afford to take reporting accuracy for granted. That makes choosing the right Approved Reporting Mechanism (ARM) more important than ever. So, how can your firm ensure they’re getting their MiFID II reporting right? And what should you look for if you’re thinking of changing providers?
Reconciliation of your regulatory requirements
Regulators continue to find fault in some firms’ approaches to MiFID II reporting, with many firms enduring fines for not meeting their regulatory requirements. According to the FCA’s ‘Market Watch’ reports in April and October 2019, for instance, there remains a number of shortcomings when it comes to reporting trade times, incorrect party identifiers, and lack of accuracy controls.
Accuracy and timeliness remain major issues too. Under MiFIR, there is a core requirement for firms to take reasonable steps to verify the completeness, accuracy and timeliness of the transaction reports.
But how to prove this? Usually, a robust reconciliation process is required. Still, given the high volumes of reports, the difficulties accessing NCAs to conduct back-checking and shortcomings in ARM solutions, this is proving an onerous task.
What are the options going forward, then? Although a minority of firms are still doing their MiFID II transaction reporting in-house, an overwhelming majority are choosing to partner with a third party ARM.
Using a leading ARM should do more than just simplify the overall reporting process, however. It should also ensure the firm is fully compliant when it comes to reconciliation – minimising mis-reporting risks, and giving you better control over the end-to-end process.
Adding value through the ARM
What should you look for in a provider? And how can you recognise you’re getting good value and service? First and foremost, a market-leading ARM should allow firms of all sizes to achieve efficiency and transparency when it comes to reporting, rather than meeting the minimum requirements.
There are many different ARMs authorised across Europe, but each will offer varying degrees of completeness for an end-to-end solution, from trade file extract through to periodic reconciliation. An ARM offering the full life-cycle of transaction reporting reduces your firm’s reliance on other data aggregators integrating with third party ARMs, giving you greater control and oversight.
Assurance, transparency and sustainability in the long term
What assurance should an automated ARM solution offer? First, many firms are seeking solutions that can quickly identify problems, often in real-time, which allows managers to eliminate manual bottlenecks in order to meet their deadlines. Early detection and reconciliation tools, which resolve discrepancies can help, particularly if powered by explainable artificial intelligence workflows.
This ensures timeliness, accuracy and completeness when it comes to your MiFID II reporting, which is even more important now boards and senior managers are personally liable under the Senior Managers and Certification Regime (SM&CR).
Second, configurable dashboards, allowing transaction reports to be viewed by asset class, security, venue, counterparty and trader can improve transparency within the firm. This will prove especially relevant for market abuse reporting, where an easily accessible and auditable trail of trade data is essential.
And lastly, the solution itself should offer cost sustainability and value in the long-term. Firms’ may have selected an ARM in haste to meet the January 2018 deadline, but are now experiencing rising costs for data storage, reconciliation and back-reporting.
Market leading product features, competitive pricing options, and ongoing service from a dedicated customer success team should all be standard features of any ARM solution. With MiFID II transaction reporting likely to be core regulatory requirement for investment firms for many years to come, it’s time to seek an ARM solution that provides long term assurance for your firm.