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MiFIR Transaction reporting: Preparing for the challenges ahead

Find out how European market participants can get ahead of the MiFIR curve.

Overview

Implementing transaction reporting under the Markets in Financial Instruments Regulation (MiFIR) will be a significant challenge. By acting swiftly now, building on experience gained from the Markets in Financial Instruments Directive (MiFID I), and developing a reporting model to suit their business, market participants could get ahead of the curve.

When the MiFIR regulation comes into effect in January 2017, it will significantly raise the bar for transaction reporting across all European Economic Area member states.

When MiFID I was introduced in 2007, numerous firms failed to respond appropriately. This resulted in costly late remediation efforts and a series of hefty fines. Six key lessons stand out from MiFID I implementation projects, and given the short time until MiFIR takes effect, market participants should move fast to identify and implement a transaction reporting model that is best suited to their business. This new insight looks at how participants can be proactive in both identifying and implementing a transaction reporting approach that complements their business model.

Key Findings

Six key lessons stand out from MiFID I implementation projects:

  • Governance and ownership.

    In such far-reaching and onerous implementations, any shortfall in governance or ill-defined accountabilities can severely undermine progress. Focus on developing a Target Operating Model for MiFIR to cover management of transaction reporting post go-live.

  • Legacy architecture and scalability.

    Legacy architectures used for transaction reporting may not be fit for purpose. Ensure that legacy architectures can scale to support the significant increase in reportable transactions.

  • People and skills.

    Some firms underestimated the change experience and regulatory skills required for MiFID I. To ensure a fast, efficient and effective MiFIR implementation, ensure the team has the right mix of transaction reporting knowledge.

  • Program mobilization.

    Underestimating the time and budget needed for implementation will have serious consequences. With less than 18 months to go-live, firms need to be realistic about the cost.

  • Front-to-back impact.

    Assess impacts across front, middle and back office systems and databases as early as possible. Expect a significant increase in data requirements for the front office, as well as complex reference data.

  • Regulator engagement.

    Ensure transparency with the corresponding National Competent Authority over risks and issues faced throughout implementation.

Recommendations

What should firms be doing now? Think differently, broaden horizons and move fast.

Decide on the transaction reporting model that suits your firm:

Option A - Siloed Solution.
Tactically add new trade flows and connections to existing transaction reporting architecture. The advantages: short-term cost benefits, quick to market, ownership and control. The flipside? This option is technology-driven, builds on legacy architecture and has scalability issues.

Option B - Single Reporting Hub.
Create an in-house platform that meets multiple regulatory requirements of transaction and trade reporting. The benefits: ownership and control, internal efficiencies, extensible solutions. The negatives? Slower to market, requires internal SMEs and the cost of delivery is high.

Option C - Vendor Managed.
Transaction reporting through business process and outsourcing or use of market utilities. The benefits include potentially lower costs, externally managed rules and shared risk. On the flipside, vendor quality is at risk, reliance on external is high and there are client data risks.