Mifid II has already celebrated its half-year birthday and while many compliance officers may have wished to celebrate by checking the “done box” on this task, the additional MiFID II obligations that are being rolled out do not seem to be abating.
In the regulatory sphere, this seemingly prolonged adaptation process is natural and thus it is still too early for MiFID II to be considered done and dusted, even by the most experienced of compliance officers. In fact, ESMA is guaranteed to tweak the rules as it gets the chance to review the transparency and transaction data being reported. Just recently for example, ESMA introduced a series of validation changes to the Transaction Reporting schema. Expected future regulation adjustments by ESMA or the NCAs will likely cover changes to reporting scope, addition of asset classes, increased number of ISINs and changes to the content required to be reported. But is there anything you can do to make your MiFID II reporting more efficient, cheaper and quite frankly less of a hassle?
DIY Reporting vs Assisted Reporting – the debate continues
When MiFID II came into effect, there was a lot of debate in the industry whether to report directly to the NCA or use assisted reporting through a vendor or ARM. The pros and cons were discussed in our blog entitled “Why we chose an ARM vs NCA for our client’s MIFID II Transaction Reporting” and so we won’t rehash the subject here. What I do want to add to the discussion is that given the latest changes and the continuous tweaks to be expected to the regulation, an added dimension of complexity has arisen for those that are self-reporting to the NCA – both in terms of keeping up with new requirements being rolled out and in terms of practically implementing these changes.
1) Keeping Abreast of New Regulatory Requirements:
There is no secret membership needed to access information about updates to the regulation, it is all publicly available. However, a systematic approach to scanning the regulators website for updates is imperative and an understanding of the nuances of the announced changes will help to solidify the practical reporting implications your company must make. Often, the change is announced on the regulators website but the specifics of when the change will take effect is documented as “TBD – To Be Determined” or “end 2018” so this requires someone in your organization to consistently monitor ESMA’s communications/website and then disseminate the information within your organization. If you are using assisted reporting, the entity reporting on your behalf will take on the responsibility of keeping abreast of the latest changes, updating you and implementing the change on a practical level.
2) Implementing New Regulatory Requirements – some recent practical examples
To understand the impact that some of the recent ESMA changes will have on your current reporting processes, let’s take a moment to look at some examples:
• Format Changes:
NCA input/output format mandated by ESMA was ISO 20022 XML. Those using an ARM or vendor assisted reporting can report to the ARM via CSV file which greatly simplifies the process and does not require an internal ISO 20022 SME on staff. Instead, the ARM or vendor will deal with the changes on your behalf and for instance will make the conversion (twice: in- and out-bound) for the trading entity. From the trading entity’s point of view, the process stays the same, whereby they continue to send their trading data to their vendor or ARM who will then make the relevant changes downstream when sending to the NCA.
• Validation Changes:
ESMA introduced a series of validation changes to the Transaction Reporting schema. There are several ESMA validations the ARM must implement and test on behalf of firms which, if these firms reported directly to the regulator, they would be responsible for doing these themselves. This saves effort of R&D and ops time.
• Other Changes
There are more regulatory changes to come that will affect MiFID II Transaction reporting. For example, certain MiFID II eligible instruments are continually changing in the FIRDS DB and this needs to be monitored too. However, using assisted reporting or an ARM can save the effort of trying to keep up and implement these changes.
We can’t make MiFID II go away, but we can make it easier
Regulators are expected to continue making incremental adjustments to reporting requirements. This will compel financial organizations who are self-reporting to the regulator to have the necessary manpower and processes in place to scan the regulators website for changes and understand how to implement the changes on a practical level. Often this will require the revision and perhaps even the re-building of current reporting processes. At Cappitech, our clients rely on us and our ARM of choice to keep abreast of the latest regulatory updates and seamlessly implement them into our automated reporting software so that they can have the peace-of-mind that they are reporting correctly without having to undergo any major internal process overhauls. However, whether you choose to self-report or use assisted reporting, one thing is for sure – there are still more MiFID II changes to come.