Transaction reporting is a necessary requirement for countless regulations, and yet Novatus Advisory co-founder Matthew Ranson believes many firms are getting this process wrong, and they might not even be aware of it.
What is transaction reporting? This is the process of generating a report on specific transactions, detailing the instruments traded, when the deal was made, how it was completed and the involved parties. Its main goal is to identify and prevent market abuse. While that seems simple enough, it is a deceptively complex task which is made more challenging by the myriad of regulations, each with their own rules and guidelines, and differing requirements between jurisdictions. MiFID, EMIR, MAS, SFTR and Dodd Frank are just a handful of the regulations that involve transaction reporting.
“At its essence, it is a data exercise. It’s about how your data flows, how you keep your data up to date, how you enrich files and submit it. That is hugely complicated when you’re talking about the number of fields, jurisdictions and products associated. It’s an incredibly challenging area.” Making things even harder is the fact these regulations are consistently adapting with new requirements. The EMIR Refit is due to go live in 2024, last year saw the CFTC rewrite and there are changes coming to ASIC. All of this creates a process that is prone to error.
Novatus helps firms become better prepared by reiterating the point that transaction reporting is an area that requires consistent quality assurance. Ranson said, “The reason firms often find themselves with large scale remediations is due to the absence of a robust control framework. A key part of that control framework is the reconciliation.”
This is where Novatus’ Transaction Reporting Assurance (TRA) platform comes in. The way firms fix their risk is by having a reconciliation process in place. When errors are identified, they can then go in and resolve the issue, rather than the other option which is to wait until a large number of errors have built up and waste resources back reporting or hiring external teams to help.
Ranson noted that firms are stretched thin managing their priorities, and the current economic climate has made this even tougher. But by spending money upfront to ensure effective reconciliation processes will help a firm stay on top of their transaction reporting processes and allow them to focus on updates to regulations. “The reconciliation is the key tool to detect the health of your reporting on an ongoing basis. I always say that without a proper reconciliation, you can’t have a good view of how your reporting is performing. And all senior executives should talk about that because it is a key requirement.”
Misconceptions with transaction reporting
There are a handful of misconceptions firms have with their transaction reporting and one of the most common is failing to get proper implementation. Often, it’s seen as a side-of-desk job, which means that data traceability might not implemented from day one, or it goes live with short-lived excitement and soon is just neglected and never updated, causing a build-up of errors.
However, the biggest misconception firms have is with the reconciliation process. For example, under MiFID II, firms are required to conduct a three-way reconciliation between their internal data, a transaction reporting mechanism, and the NCA. Firms often use an approved reporting mechanism (ARM) to check the eligibility of transactions. However, Ranson explained that many firms think that ARM is the entire process, not just one step.
“We have seen instances where firms have been doing exception management with the ARM or trade repository, and they’ve thought that was reconciliation.” He noted that reconciliation should also be completed by an independent team or company to ensure accuracy. “We’ve seen instances where companies have created a reconciliation by the same team that are doing reporting and surprise, surprise, they match so that independence perspective together is very important.”
What makes Novatus the best solution for the job
Novatus combines cutting-edge technology and market-leading advice so that its clients can navigate complex issues, maximise commercial opportunities and build sustainable businesses. Its technology not only supports transaction reporting, but also covers authorisations, compliance, data, ESG, operational resilience and risk management.
The Novatus TRA platform is an end-to-end platform that supports the entire lifecycle. It can be customised to cover any selection of global regimes and supports diagnostics, remediation, optimisation, back-reporting, pre-trade submission, post-trade submission and full reconciliation. For assurance needs, TRA runs thousands of checks on a client’s data and provides the results in interactive dashboards. As for reconciliation, TRA takes the source data and independently creates trade files and compares it to what was reported.
A standout feature of the Novatus solution is its development in conjunction with one of the world’s largest banks over a two-year period. This led to frequent calls with the client asking them to how the solution could be improved. But Novatus continues to adapt its solution to stay relevant. Novatus is always in conversation with clients to make further improvements. Additionally, its professional services team lead remediation for clients, which means they regularly engage with regulators. Intel from these discussions is then fed into the platform to the benefit of all clients.
Another defining feature of the platform is its transparency. Its platform can identify the exact part of the regulation a client is in breach of, removing them having to find it themselves. This leads into the last differentiator of Novatus, which is speed. “Clients come to us and say, ‘Novatus, with my current provider I cannot accurately say how my reporting is performing. I spend so much of the month working out what’s a false positive, what’s an actual error and what’s caused it, that at the end I only have a couple of days to actually do the root cause analysis and fix it.’” He added that through Novatus, the client is just three clicks away from identifying the actual errors and understanding how to fix it. “We’ve had clients achieve between 50 and 70%, savings of headcount using our technology,” he added.
Speed is a key factor of Novatus’ offering. The technology can be implemented and running within just an hour, but the tool can complete its reconciliation process every hour if needed. That speed allows the solution to be run as frequently as desired, whether it is just after a major system upgrade, ahead of a new product launch or as a regular weekly check. This speed allows teams to stay on top of errors in their reporting, rather than discovering issues months down the line. On top of this, the speed helps to remove the time burdens on staff. Whether that is the time teams have to spend implementing the technology or them trying to comprehend new regulations.
“The way we position ourselves is that if that team spent three quarters of their period understanding the errors that reconciliation will be reduced to a day. You get so much more productivity from that team, which means they can do more in the period and you don’t have to increase headcount. That is one of the real values that people are seeing in the technology. It is not comparing apples to apples, because other technologies in the market space, do not have that ability to very quickly within clicks understand what’s going on. So you’re freeing people up and you’re getting more productivity in an area that’s getting more complex.”
Putting clients first
Novatus’ team boasts a wide range of experts, each with deep experience in their respective roles. This includes onboarding specialists, data scientists, front and back-end developers, and more. One thing Novatus Advisory prides itself on its blend of technology and expertise. “When we’re demoing our technology, we always say that the technology is amazing but ultimately, if it doesn’t do what it’s supposed to do, it doesn’t matter how it all works. So we invest equally in both.” Novatus has a team of professional service advisors that specialise in transaction reporting and are always ready to assist clients when needed.
Ranson explained that its desire to be customer centric and provide each client with the best possible service has helped it become a major force in the transaction reporting market. Testament to this, Novatus has retained every client it has ever had.
He concluded, “You can genuinely see the excitement in clients that have used other providers, because they understand how this is going to change their life.”
