Wealth Manager - the site for professional investment managers

Register free for our breaking news email alerts with analysis and cutting edge commentary from our award winning team. Registration only takes a minute.

Why are firms failing on Mifid II reporting?

Why are firms failing on Mifid II reporting?

Earlier in April, regulatory consultancy Bovill suggested that nearly one in four firms submitting transaction data under Mifid II rules filed inaccurate returns. 

We dug further into the findings and asked compliance experts why firms are struggling to comply with the new regulations.


Systematic failings

Matthew Chapman, senior principal consultant at ACA Compliance, suggested that there has been a ‘systematic’ problem in reporting failures.

‘There’s a misconception that as long as the reporting process appears to be working and validation errors are being cleared, that everything is as it should be,’ he said.

‘The FCA has been saying for months that they are losing patience with reports which are ‘valid but wrong’ – where fields are populated with values which pass validation, but which are incorrect. In some cases they are clearly fabricated to force a report through the validation checks.’

 

What is the issue with transaction reporting?

Bovill managing consultant, Damon Batten, told Wealth Manager that, although in principle transaction reporting should be easy, firms are struggling to pool all the data required from myriad systems.

He said: ‘The issues arise because the reports themselves are complex, they require data to be sourced and consolidated often from a number of systems, and the scope of the reporting is very broad. Many errors creep in when data is transferred in back office systems, with every transfer or mapping of data representing a risk.

So do firms have the right systems in place to comply with the new regulation? Batten believes that although many will have made significant investments in back office technology, others will still be reliant on ‘very manual processes’.

He said: ‘The biggest area of under-preparedness is generally in the controls and validation, where firms are still not able to prove and continuously improve the quality of their reporting.’

John McGrath, chief revenue officer at BidFX, added: ‘On top of the bid/offer price, asset managers face the unenviable task of uncovering implicit costs that could include commissions and taxes.

‘This presents somewhat of a problem, particularly as what is considered ‘best execution’ is no longer necessarily obtained by trading at the best price, but at the price that represents best value to the fund. If these implicit costs can’t be displayed clearly to investors, how does a fund manager harbour any hopes delivering the best possible value?’

 

Are companies taking Mifid II seriously enough?

Batten stressed that the vast majority of firms in the UK take their obligations under Mifid seriously. However, transaction reporting in particular is a back office function, and therefore nothing but an overhead to firms.

He said: ‘Firms are balancing the regulatory risk of misreporting versus the significant cost of designing systems and controls which would be capable of ensuring 100% accurate reporting at all times.’

Chapman added: ‘There are few firms which have failed to appreciate the importance of correct reporting.

‘Although reporting is a largely binary process, it is riddled with complexity. Even when a firm has reported in a way that is, to all intents and purposes, correct, their data is being corrupted by their service providers. This results in an unholy mess that can only be discovered through regular reviews of data extracted from the FCA’s market data processor.’  

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Your Business: Cover Star Club

Profile: how Tiller believes it's cracked robo-profitability

Profile: how Tiller believes it's cracked robo-profitability

Ian Cadby and Jonathan Wauton of Tiller Investments believe they have developed the next generation of digital wealth platform.

Wealth Manager on Twitter