06/10/2017 – By Gaurav Chandra, Product Manager, AxiomSL EMEA
With less than four months to go prior to MiFID II implementation, it is becoming increasingly apparent that many firms are struggling to tackle the compliance challenges and meet the implementation deadline. Financial institutions are under tremendous pressure around reporting, transparency, data quality and exception management requirements emerging from MiFID II.
The legislation demands the regulator and market participants to have an equal amount of information to enable sustained financial stability and prevent market abuse. While this is beneficial in the longer term, the complexity of MiFID II compliance currently presents major hurdles to both sell side and buy side firms.
Large sell side financial institutions eg: banks, exchanges appear to be better equipped in their preparations for MiFID II reporting obligations, despite dealing with larger volumes of transactions. In respect to reporting requirements larger institutions that already needed to report equity instruments and derivatives under MiFID are to some extent more familiar with the challenges presented by MiFID II. Smaller buy side firms on the other hand, eg: wealth and asset managers who have not conducted transaction reporting in the past are struggling due to the lack of resources and personnel to investigate MiFID II reporting requirements, preventing a seamless transition to the new regime.
MiFID II presents firms with a number of exceptional challenges, including; reporting scope, real time reporting, transparency, personal data privacy concerns, data quality and exception management. The reportable scope of MiFID II is much larger compared to its predecessor MiFID with a significant increase in the number of fields required for transaction reporting. The regulator now demands in-depth data with more frequent updates and real-time reporting in case of APA. The requirements for each field are more specific with narrower data definitions and calls for strict data quality.
Firms also have privacy concerns regarding personal data as it is no longer sufficient to identify the trader with an internal ID. A much more detailed set of information is required including passport numbers of each participant involved in the trade. Exception management also poses a greater challenge with the need to have a robust system that can monitor and fix data issues in response to possible error feedback from the repositories. Most companies are not geared up with an operationally efficient automated system to deal with the feedback from Trade Repositories (TR) that can identify any rejections, fix and resubmit the data.
Furthermore, given legacy systems have been set up to facilitate trading activity and not reporting activity, current inflexible technology solutions have left many firms largely incapable of handling reporting multiple sources of data in real time. Additionally, traditional current systems tend to be hardcoded that creates difficulty to adjust as regulations and reporting requirements change over time. Bringing in external consultants to help the firm figure out what their obligations are or develop internal solutions are both time consuming and extremely costly.
Knowing where to look
It is critical that market participants act fast to achieve a successful MiFID II compliance. Firms should be looking to implement an affordable and time-efficient solution that will take care of the major issues the new regime presents. We have seen time and again that firms panic in the face of demanding regulations and rush into deploying inflexible, tactical solutions. This may solve initial transaction reporting requirements and meet tight deadlines, however will be more burdensome and untenable in the medium to longer term. A strategic holistic approach to transaction reporting is necessary, to optimise reporting processes by bringing transaction reporting under a single flexible platform.
Each new piece of regulation increases operational costs, and in some cases, causes firms to completely re-evaluate how, where and with whom to conduct business. By reducing the cost of regulatory compliance on a timely manner, AxiomSL’s solution gives firms more flexibility in making these difficult strategic business decisions. With the arrival of MiFID II, AxiomSL has expanded its offering to facilitate real time reporting requirements and its range of Dashboards to allow ease of control and monitoring.
As a next step, firms should be looking for solutions that will allow them to identify data quality issues which will deliver the analytical tools to assess the root cause of these problems and resolve them. They should be looking to reduce operational risk by consolidating their transaction reporting activities into a single platform.
Market participants have to make sure that every trade they execute has been reported, starting from 3rd Jan 2018 timeline. And the firms which only have time for a tactical solution for now, will toned to revisit this and deploy a strategic solution to meet all future reporting obligations.
Click to find out more about AxiomSL’s MiFID II solution