Even though the Markets in Financial Instruments Directive (MiFID) has been a regulatory requirement in the EU since 2014, and the Markets in Financial Instruments Regulation (MiFIR) came into force in 2018, reporting errors under Article 26 of MiFIR are still common. Regulatory scrutiny remains high for these regimes, and firms often face common pitfalls and reporting errors that can easily be avoided.
Potential Transaction Reporting Errors in Data Integrity and Scope
Analysis of regulatory findings identifies some key areas for the most common reporting errors:
- Incorrect Identification
- Timestamp Errors
- Incorrect Attribution and Interpretation
Incorrect Identification
One of the most common data integrity failures is the incorrect identification of the counterparties involved in a transaction. This can be caused by the submission of invalid or lapsed Legal Entity Identifiers (LEIs) for clients and counterparties, or by incorrectly categorising the executing entity.
Timestamp Errors
Another common issue in transaction reporting is the use of incorrect timestamps that don’t reflect the execution details accurately. The reporting information must be exact and granular, and even minor errors with execution details can lead to incorrect data for regulatory oversight.
Incorrect Attribution and Interpretation
Firms can also attribute the wrong International Securities Identification Number (ISIN) for the specific instrument being traded. There are some common issues with using the correct venue definitions, which can lead to the incorrect application of the Traded on a Trading Venue definition.
Common Pitfalls in Post-Submission Reporting Governance
Reporting obligations do not end at the point of submission, and regulators expect firms to demonstrate a robust, post-submission governance framework. This should include processes for monitoring and reviewing the status of transaction reports, as well as reviewing feedback files from the relevant National Competent Authority (NCA). Firms that don’t remediate the errors highlighted in these feedback files are demonstrating a lack of clear governance to regulators. This lack of oversight can lead to an erosion of trust from the regulators and potential penalties, even if the initial submission was on time.
How Can Firms Avoid Transaction Reporting Errors?
There are several ways that firms can avoid potentially costly transaction reporting errors. Firstly, it is imperative that firms focus on data quality as well as the timeliness of transaction reporting and implement clear validation rules before submission to regulators. Compliance should be seen as a firm-wide priority, and all staff should be trained on the importance of data quality and accuracy. By making transaction reporting a core concept of the firm and allocating direct lines of accountability and governance for oversight, firms can take the important first steps toward continuing compliance. Firms must now focus on submitting timely and accurate reports and adhering to a T+1 reporting schedule. This timescale does not allow much time for manual checking of transactions, and so firms should be investing in RegTech compliance solutions or managed transaction reporting services. Before implementing any solutions, firms should conduct a thorough review of their existing processes and past errors to identify the specific root cause of their reporting errors. Novatus Global offers end-to-end, managed transaction reporting services to provide our clients with a comprehensive and error-free process. Our transaction reporting solutions are designed to streamline reporting workflows, improve data accuracy and ensure compliance.
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