Brexit Delay Adds to Trade-Reporting Uncertainty
Why further Brexit delay creates greater reporting uncertainty for fund managers
By Quinn Perrott, co-CEO of TRAction
There is a funny sense of déjà vu when it comes to the latest twist in the Brexit saga. The trouble is that whenever the can gets kicked down the road, market participants put Brexit to one side and allocate IT, process management and compliance resources elsewhere.
Then, as soon as the new deadline creeps up, firms need to dust off their plans, and work out how to modify their reporting, until the deadline gets extended again. This all amounts to a seemingly never-ending cycle of uncertainty when it comes to trade reporting. With the EU confirming a new deadline date of January 31st 2020, and Boris still trying to force through an early general election, there is more uncertainty now than ever.
This constant failure by politicians to reach an agreement adds a major administrative cost burden to investment firms, especially those offering delegated reporting to corporate clients, both in the UK and EU. Those funds managers subject to both EU MiFID II, and an FCA version of MiFID II, need clarity on whether or not they will need to split out transaction reporting duties. The trouble is, if an election is called and Boris loses, we could well enter second referendum territory, thus making all the reporting leg work done to date redundant.
Alternatively, if Boris manages to squeeze his deal through Parliament, then an EU investment firm executing its transactions via a UK branch or vice versa will have dual obligations. With so much reporting to deal with already, no investment firm wants the additional headache of reporting to two regulatory authorities. Fund managers domiciled in the EU will need to report to EU-based (as it will then be constituted) Trade Repositories (TRs) and Approved Reporting Mechanisms (ARMs). Investment Managers will need to continue to submit reports in the current format, but likely to UK-based TRs and ARMs, until such a time any changes are made by the FCA to MiFID to create a divergence from the current EU directives and regulations.
Thanks to this latest delay, it is still unclear what will be the specific impact will be on MiFID reporting. Yet fund managers can’t afford to sweep the Brexit issue under the carpet until the next deadline – whenever it will land. The only thing the buy-side can do, when it comes to reporting, is to try their best to prepare for all possible outcomes.
UK will be granting a package of equivalence decisions to the EU and EEA member states.
Only mutual equivalence will allow firms to satisfy STO obligations at trading venues in both the EEA and UK.
The European Commission wants the industry to reduce exposures to UK market Infrastructures.
EU investment firms will not have to report transactions on a UK trading venue via an EU APA.
The scope of the UK STO after the end of the transition period remains unclear.