Four Techniques for Building an Effective Transaction Reporting Solution
Regulation and enforcement continue to increase. This year alone we have seen several new regulations or adjustments to existing regulations being introduced, despite a world-wide pandemic. For many firms that execute financial transactions and are obligated to report under various regimes, transaction reporting can be a task that is daunting, time-consuming, costly and quite frankly a headache that distracts from your core business activities. But it doesn’t have to be.
If you are just starting out on your transaction reporting journey and are setting up your EMIR reporting, MiFID II reporting or SFTR reporting for example, or perhaps are obligated to do best execution under MiFID II or looking to do a 3 way reconciliation; then finding the right regulatory reporting solution is essential. Even if you are well on your way to reporting maturity, making sure you are using the right tools will have ramifications on your reporting output. Take a moment to see if you have all your reporting bases covered with the below checklist.
1. Get your data straightened out
Are you capturing all of your data that needs to be reported? And is it accessible in an easy format for report creation? Make sure you are working on filling any data gaps you may have (preferably before implementation). Pay special attention to the following:
- Data capture – Is your data capturing all reportable trades? If not, how is this information being added?
- Static data – Who and how is it being updated? Lack of continuity of data updates has been found to be one of the biggest reasons for causing report rejections.
- Integrating new systems and products – What is the process you are using to account for new front office trading systems? In our experience, we have often found a lag between sales and trading departments sharing details of new initiatives with compliance.
2. Implement a control environment to ensure CAT (Complete, Accurate and Timely) reporting
- Completeness: reconciliation
There are many aspects of what defines complete reporting and reconcilation serves as a good tool to identify any issues. When comparing the number of transactions sent versus the number of transactions accepted by the regulator, you can identify numerous reporting problems such as rejections or records missed. In many cases, a field-by-field comparison is required to solve the issue. It could, for example, be a problem with an erroneous trade size recorded on a counterparty or vendor system. While the regulator will accept the transaction, it is only by comparing the transaction size fields that the issue can be identified. Its advised to download the XML data NCAs receive on your behalf and compare to your submissions in order to identify gaps. - Accuracy: rejection handling and identifying issues
It’s imperative to have a daily process in place to check your reporting status and learn which of your submitted trades have been accepted, submitted or rejected. Firms should review the cause of rejections to understand whether it is a minor data error or a broader systemic issue. Small errors should be addressed and re-reported as quickly as possible; systemic problems will require new procedures in order to rectify the issue. - Timeliness: address your late reporting
Regulators require firms to report trades no later than T+1. To reduce the number of late reporting instances, you should monitor the timeliness of your reporting and drill down into the details of late submissions to identify any underlying problems in their reporting process. 
3. Measure Key performance indicators for on-going reporting improvements and benchmarking
- Monitor Rejections: document your rejections and why they happened
- Review rejection rates and late submissions: compare to previous data points to see if they are declining
- Reporting Gaps: review products and ISINs trades to ensure everything under scope is being reported as it should be
- Instrument mapping: examine which data can be recycled to increase efficiency of day to day reporting
- Benchmark your performance to your peers: compare your reporting capabilities versus the industry average. Review your rejection and late reporting data to gauge your capabilities vs the industry.
4. Keep up to date on regulatory changes, updates and guidance
Regulators are expected to continue making incremental adjustments to reporting requirements. If you are self-reporting to the regulator, you will be compelled to have the necessary manpower and processes to scan the regulator’s website for changes and understand how to implement these on a practical level. This will often require the revision or even re-building of existing reporting processes. Furthermore, as new regulations are introduced, you will need to have systems in place that can quickly comply. You should ensure that your regulatory reporting solution has the flexibility to quickly adapt to regulatory change. Updates on the regulations can typically be found in the following places:
- ESMA Q&As: European Securities and Markets Authority (ESMA) publishes questions received as well as answers to help keep the regulatory reporting community up-to-date and informed.
- FCA Market Watch: The Financial Conduct Authority (FCA) publishes a newsletter that examines market conduct and transaction reporting issues.
- Consultations: The European Securities and Markets Authority (ESMA) periodically releases public statement consultations around regulations. The goal of these consultation papers is to create a consensus between interested parties on what regulatory action is needed and to improve ESMA’s decision-making process.
Prevention is cheaper than cure – do it right!
UBS and Goldman Sachs were fined by the UK Financial Conduct Authority (FCA) for reporting failings to the amounts of nearly £27.6m and £34.3m respectively. However, even without going into the penalty stage, the drain on resources when you have an inefficient regulatory reporting system in place is costly. Doing it right is certainly better than having to constantly put patches on a broken system. The above techniques are a good start in that direction.
Talk to us about how to implement the above. Streamline your transaction reporting today.
