Regulated firms are paying the price
Certain Order Management Systems (OMSs) have recently come under scrutiny from the FCA because of quality issues around MiFIR reporting. Firms that heavily rely on their OMS for daily regulatory reporting have been found to consistently over or under report their transactions.
Firms that simply export a daily transaction report from an OMS and send it directly to an Approved Reporting Mechanism (ARM) without added validation checks should be concerned. The responsibility for accurate reporting rests solely with the regulated entity, and soon reporting errors from certain OMSs will no longer be tolerated.
The black box problem
Certain OMSs are likened to black boxes when it comes to transaction reporting. There is very little transparency and visibility into what goes in the daily transaction reports downloaded by clients. As a result, regulated firms relying on this method have little to no way of knowing if the daily extract of transactions is in alignment with regulatory standards.
In fact, a couple of common issues with these systems is that they have slow or inaccurate MiFIR eligibility checks and struggle with security identification for anything more complex than listed products. To give an example, when a security is unknown to the system, certain fields are populated with default values. Take FX Forwards for example – through various consultations, we have seen multiple examples where these have been reported as Indices. Whilst this passes the validation checks (by defaulting the [Underlying Index Id] field value), it produces an inaccurate transaction report.
Because of these issues and the lack of visibility into the reporting process, many firms have unknowingly over, under or mis-reported.
The regulator’s intensified push on data accuracy is certainly being felt and we have been approached by several firms that have been given less than 3 months to remediate their reporting.
The implications are grave, and fines are rife for reporting errors. In 2019, Goldman Sachs was fined £34.3 million for failing to provide accurate and timely reporting. The same year, UBS were fined £27.6 million for reporting issues. And that does not include the reputational and commercial consequences of such bad press.
Improving your reporting
A crucial element for firms to have confidence they are not over or under reporting is enhanced transparency and visibility into the reporting workflow.
Firms should have insight into each step of the process, from data ingestion and validation, to security mapping, eligibility checking, report creation and submission. A system that can do these processes automatically, and quickly throw back any errors can mean the difference between accurate and inaccurate reporting.
We have heard many stories of compliance officers spending long hours in the office waiting for their transaction reports to be validated and when they return an error, there is no insight into where the error occurred or which part of the process failed – leading to a long and arduous search to identify the issue. If you return an error, a reporting solution should be able to tell you exactly what trade, order or process failed and why. It should also give you the ability to address the error natively within the platform.
A need for change
The MiFIR reporting process is complex and trying to manage it inhouse, through a report extracted from an OMS, is neither scalable nor reliable. This does come back to the age-old build vs buy argument. Reporting technology vendors have mastered the art of reporting and can not only offer end to end visibility and process automation, but give firms piece of mind that firms are meeting their obligations accurately. But in vast vendor landscape, choosing the right reporting partner can be tricky. When looking for a vendor, we recommend firms look at the following criteria:
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Make sure the vendor carries out a wide array of eligibility checks (300+ ideally).
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Select a vendor that has a data-centric approach to compliance. Good data management and governance is essential for accurate reporting.
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Invest in a compliance platform can transform your business. It is important to choose tools that:
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deliver flexibility & accuracy - that are easy for your team to use every day
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bring all your data together on one platform
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reduce the number of systems and vendors you rely on
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automate your regulatory processes
SteelEye is a trusted compliance platform for MiFID II, EMIR, Dodd-Frank, MAR, SMCR & more. Established to reduce the complexity and cost of financial compliance, SteelEye enables firms globally to manage their regulatory obligations through a single platform.
SteelEye’s ability to bring together, cleanse, index and analyse structured and unstructured data across all asset classes and communication types enables clients to effortlessly meet their regulatory needs, because when all this data is in one place, compliance becomes both easy and cost-effective. And with everything under one lens, firms also gain fresh insight into their business, helping them improve their efficiency and profitability.
To date, SteelEye has launched solutions for record keeping, trade reconstruction, transaction reporting, trade and communications surveillance, best execution reporting, transaction cost analysis and advanced analytics for regulations including MiFID II, EMIR, Dodd-Frank, SMCR and MAR.
