The UK FCA recently unveiled Market Watch 74, a newsletter offering an in-depth look into regulatory concerns surrounding transaction reports by investment firms.
To help dig deeper into this, eflow Global recently took the time to provide an in-depth explanation of the most recent Market Watch.
Specifically, this edition dives into Regulatory Technical Standards (RTS) 22 and 23, outlining the reporting requirements that firms must adhere to.
RTS 22 focuses on the Regulatory Technical Standards for reporting transactions to competent authorities, in this case, the FCA. Meanwhile, RTS 23 aims at the supply of financial instruments reference data that trading venues must provide for transaction reporting. These reports are critical tools for the FCA, enabling them to maintain effective market oversight. Yet, the FCA’s current assessment reveals ongoing issues in the timely and accurate completion of these reports by several firms.
Under the section titled ‘Reconciliations and Breach Notifications,’ the FCA voices its concern that of around 3,600 investment firms authorised under MiFID, merely 745 accessed the FCA’s Market Data Processor (MDP) Entity Portal in 2022. Even fewer, only 345, submitted Error and Omission (E&O) forms. This highlights a troubling lack of awareness about the MDP Entity Portal, while also indicating that firms are relying heavily on data from approved reporting mechanisms (ARMs) for their reconciliations.
In terms of Error and Omissions, UK MiFIR’s Article 26(7) dictates that firms must void incorrect reports and submit corrected versions. Firms are also reminded of Validation Rule 269, which disallows transaction reports submitted over five years after the trade date, although information relating to when the error first occurred must still be included.
A key concern for the FCA is the identification of decision-makers in investment and execution processes. Firms often delegate these roles to senior management, who typically are not deeply involved in transaction-level decisions. This raises questions about the appropriateness of such assignments.
In the realm of data quality, the FCA has discovered instances where firms submitted transaction reports for spread trades that do not align with ESMA transaction reporting guidelines. Such inconsistencies, along with discrepancies in price and quantity notations, can severely hamper the FCA’s market abuse monitoring efforts.
Timeliness in reporting is also stressed by the FCA, as trading venues are expected to have robust systems to detect late reporting and to submit instrument reference data errors and omissions promptly. Transmission agreements between firms are another focal point. The FCA has identified scenarios where misunderstandings between transmitting and receiving firms led to reporting oversights.
In summary, Market Watch 74 sheds light on the critical areas that investment firms need to focus on to comply with the FCA’s regulatory standards, aiming to tighten transaction reporting and thereby enhance market integrity.
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