When it comes to create and submitting complete and accurate reports under a slew of regulations, companies cannot simply rely on man or machine separately – they are both needed, claims ACA.
ACA Global recently detailed this at a conference. The company put together a blog that encompasses some of the opinions of that whitepaper.
ACA highlighted that while the role of technology in regulatory compliance is key, ‘human involvement is needed as an overlay at every stage of the reporting process’. The firm added that many companies are struggling to find this balance and get their transaction reporting right, with high error rates still being seen.
Many financial firms are struggling to get their EMIR, SFTR and MiFIR reporting right, with recent research by ACA finding that 97% of firms have reporting errors, 85% of reports feature an error and on average firms have 30 different error types.
The company highlighted that there had been a decline in confidence in the quality of their data, with just 65% of companies in 2022 being very confident in data quality compared to 87% last year.
When quizzed on their greatest challenge, one-third said their greatest challenge is building a reporting framework, while 28% said their greatest challenge is monitoring and 22% said it was logic specification.
ACA continued, “While a small number of firms may continue to do their reporting manually, because they will trade just a few times a year, most firms now use some form of technology to assist with their reporting. But what is clear firms cannot just leave it up to the machines.
“Human intervention to ensure the reporting is being done correctly is essential to understand the different activities of the firm and how they should be reflected in reports, to specify the reporting logic and configure the technology based on that analysis, and to ensure controls are operating properly. Without this intervention, one small error can wind up being replicated thousands – or even hundreds of thousands – of times.”
The company highlighted that businesses also need to be sure their exception management processes are robust. Training, expertise and good process among exception management staff are essential to ensure exceptions are handled in a consistent way each time, and that they are resolved correctly.
ACA added, “When it comes to reconciliation and monitoring, it’s not practical or meaningful for firms to do this in a manual way, or by sampling. Firms should be analysing all of the fields and all of the reports, to make sure the data is high quality – and remember that just because regulatory reporting passes validation, that doesn’t mean it’s correct.
“Successful reporting therefore requires a hybrid approach of technology – to do the heavy lifting – and human expertise – to make sure that the technology is set up properly in the first place and operating as intended thereafter. This is an approach that has been explicitly recommended by the FCA in other areas such as market abuse surveillance and best execution monitoring, and the same principle applies here.”
Despite this, ACA noted that its clear that many firms are ‘not doing enough’ and in some cases, are not even covering the basics. Last year, a FoI request to the FCA last year by ACA revealed about 3000 firms had the permission profiles to bring them in scope of MiFIR reporting, but only about 900 actually had access to the market data processor.
ACA concluded “Firms need to be sure that their technology systems can easily and quickly adapt to regulatory and business change, and that the teams managing reporting technology have been properly trained in how to make changes to the system. Changes increase the risk of reporting errors, and so need to be managed carefully, be it in terms of new personnel, new clients, the trading of different instruments, or the forthcoming EMIR Regulatory Fitness and Performance (REFIT) reporting changes.
“The consequences of reporting errors are often considered only in terms of enforcement action and fines. Although the FCA’s self- proclaimed objective of becoming a ‘data-driven regulator’ means that it is a question of ‘when’ and not ‘if’ we see such enforcement actions being taken, firms would be wise to also consider the other effects of regulatory scrutiny, even where they do not lead to a fine. The costs of a section 166, of external counsel and consulting support and of remediation and back-reporting, as well as the management time and personal stresses that can all arise from that scrutiny should not be ignored.”
View the full whitepaper here.
Earlier this year, ACA Group appointed Neeraj Karhade to the role of chief financial officer.
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