European Regulators Concede Reporting Flaws

Shanny Basar

The UK regulator has authorised four approved reporting mechanisms to meet new regulations even as European supervisors admitted that reporting requirements need to be streamlined.

Under MiFID II, the regulations coming into force for financial markets in the European Union at the start of next year, approved reporting mechanisms (ARMs) report details of transactions to national regulators on behalf of investment firms. The new regime requires reporting of up to 65 fields for each transaction, more than double the number of fields required under MiFID I. Investment firms can either report through an ARM or directly to their national regulator.

However Patrick Pearson, head of unit, financial markets infrastructure, DG FISMA at the European Commission, said in a speech at the ISDA Annual Europe Conference in London yesterday that reporting needs to be streamlined, especially for corporates.

In May this year the European Commission proposed changes to  the European Market Infrastructure Regulation (Emir), which covers central clearing and came into effect in 2012 with a built-in requirement for a review of its operation.

Pearson said: “Emir was adopted on the understanding that it would need amendment and it is time for a refit to simplify the requirements and make them more proportionate. One of the areas that needs change is reporting which needs to be more streamlined.”

A poll at the ISDA conference found that three quarters of attendees believe the Commission needs to go further in its proposals to change reporting.

Patrick Pearson, European Commission

Pearson said: “We can do better as the regulatory desire is economic ease. That is why single -sided reporting is a goal and there needs to be more sensible requirements for non-financial corporates.”

Emir requires both sides of a trade to report transactions to repositories, where they are meant to be reconciled. However, market participants have said that double-sided reporting does not add any value and has pushed for single-sided reporting.

Carole Uzan, deputy head – market regulation division, at the AMF said at the ISDA conference that the French regulator supports double-sided reporting because it enforces market discipline.

Uzan said: “However, there is a clear lack of proportionality in the Emir reporting requirements, especially for corporates and smaller financial firms. We also believe that MiFID II reporting for listed derivatives is adequate for our purposes so why do need them to be reported under Emir as well ?”

In addition Emir requires the reporting of up to 85 individual data elements, with 23 also reportable under MiFID II.  Emir also requires both sides of a trade to be reported to an authorised trade repository while MiFID II requires trade reporting via an Approved Reporting Mechanism (ARM).

A report from the The European Post Trade Forum (EPTF) this summer also  said the Commission should set a high priority on addressing the lack of harmonization across multiple post-trade reporting requirements in the region as this hampers investment.

The European Commission set up the  EPTF last year as an informal expert group from across the market to look at post-trade issues including collateral markets and derivatives with the aim of supporting the Capital Markets Union. The EPTF said  multiple post-trade reporting requirements increase the cost of reporting and the complexity of data analysis and set a high priority on the European Commission developing a harmonized and simplified reporting package.

“Entities that have multiple reporting obligations may have to build multiple reporting channels,” said the report. “As an example, there is no reuse of data between the MiFID and Emir intermediary channels or reporting frameworks.”

The UK Financial Conduct Authority today listed four authorised entities as ARMs from 3 January 2018 on its website: Abide Financial, Bloomberg Data Reporting Services, London Stock Exchange and Xtrakter.

1. Abide Financial is part of NEX Regulatory Reporting, a NEX Group business.

NEX Regulatory Reporting said it has been testing of its ARM since July the year and will shortly be able to conduct end-to-end testing through to the FCA and other European regulators as MiFID II comes into effect in 96 days.

Collin Coleman, head of NEX Regulatory Reporting, said in a statement: “ARMs are a fundamental component for tracking and tackling market abuse, one of the key aims of MiFID II. While many UK-based clients will be familiar with the ARM model, having been a construct of the FCA under MiFID I, the number of fields that need to be completed to be compliant poses a significant challenge, especially for European clients preparing for a new regulatory end-point.”

2. Bloomberg Data Reporting Services

Ben Macdonald, Bloomberg’s global head of enterprise products, sad in a statement: “The ARM service, used in connection with our seamlessly pre-integrated best execution and trade archiving and reconstruction solutions, helps firms ensure that data is consistent across their entire workflow, which will be critical given the vast amount of data firms need to manage under MiFID II.”

3. London Stock Exchange

Mark Husler, chief executive of UnaVista said in a statement: “Through our enhanced UnaVista offering and the recently approved TRADEcho platform, LSEG can offer customers a single connectivity solution for all their real time publication and reporting requirements under MiFID II and MiFIR for both on-exchange and OTC transactions. We already have hundreds of clients testing on our platform and benefiting from our experience of preparing firms for regulatory go-live.”

4. Xtrakter, from Trax, a wholly owned subsidiary of MarketAxess

Len Delicaet, head of regulatory reporting strategy, Trax, said in a statement: “Leveraging our deep understanding of reporting as an ARM under MiFID I, coupled with our industry-leading technology, Trax’s reporting solutions and testing environments are helping firms successfully prepare for MiFID II implementation today.”

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