Industry warned as regulators fail to provide feedback on MiFID II transaction reporting

Firms are at risk of fines for MiFID II transaction reporting failures, as almost 70% state they have received no feedback at all from regulators on submissions.

European regulators are failing to provide feedback to most market participants on the quality of transaction reports submitted under MiFID II, almost two years after the rules were implemented.

A majority of 68.4% of firms said they have received no feedback whatsoever from regulators on transaction reporting, widely regarded as one of the more burdensome requirements under MiFID II, according to a survey of banks, asset managers and other institutions from compliance technology provider Cappitech.

The remaining 31.6% respondents said they did receive some form of feedback on transaction reports, specifically on errors such as incorrect prices in currencies, mismatches between CFI codes, and other anomalies in identifier fields for clients.

While none of those who received feedback from regulators on the transaction reporting have been fined for the errors, Cappitech warned leniency is unlikely to continue indefinitely and firms should “not take too much comfort” from the relaxed approach from authorities so far.

“Although the majority of the market has not yet had feedback, the regulators are working their way around the market and have managed to see one third in just two years,” Mark Kelly, member of the advisory board at Cappitech, told The TRADE. “Regulators are using this time to work out where problems are systemic and require updates that need to then be circulated to the entire market. Individual firms who received direct feedback also need to implement suggested changes quickly as the regulator is less likely to be as understanding on future visits.”

The industry has recently seen two major fines for MiFID-related transaction reporting failures, which were handed to investment banks UBS and Goldman Sachs earlier this year by the UK’s Financial Conduct Authority (FCA). UBS was fined £27.6 million for 135.8 million errors when reporting transactions over the course of a nine-and-a-half-year period. Similarly, Goldman Sachs was fined £34 million for over 220 million transaction reporting errors between 2007 and 2017.

Elsewhere, the survey found that 61.4% of firms admitted they are not monitoring best execution, despite it being a requirement under MiFID II. Most firms said they have not implemented systematic monitoring processes for best execution. More than 70% are also not using the RTS 28 reports to make trading decisions, while 56.6% said they are not reviewing RTS 28 data.  

“The relatively low compliance to best execution monitoring is a real concern as is the fact that firms are not yet gaining additional benefits from the public RTS 27/28 best execution. The regulators have made it clear that this is central to ensuring best practice in trading execution on behalf of clients, and ultimately individuals’ savings and pensions,” Ronen Kertis, CEO and founder of Cappitech, told The TRADE. “We already see few EU regulators (NCAs) approaching their member firms with a request for more details or auditing their best execution monitoring practices.”

The research follows a similar survey from Cappitech last year, which found that 56% of respondents who are legally obliged to produce RTS 27 best execution reports were not doing so, while 60% stated at the time that they have no intentions to use the RTS 27 reports internally to shape execution policies.