MiFID II Ushers in New Reality for Regulatory Reporting

By Cian Ó Braonáin, Sapient Global Markets

Originally published on TABB Forum

Only 10 percent of firms are ‘very ready’ for MiFID II, while 57% plan to invest in technology to support the regulation’s complex requirements. Despite the announced delay to MiFID II implementation, firms need to fundamentally change the way they approach trade and transaction reporting. Here are four solution requirements for the new reporting landscape.

Many financial institutions are either unprepared or believe their technological support systems are insufficient for Markets in Financial Instruments Directive (MiFID) II reporting compliance. 

Indeed, only 10% of firms feel “very ready” for MiFID II, while 57% plan to invest in technology to support the regulation’s complex requirements, according to a recent survey conducted by DerivSource in partnership with Sapient Global Markets during the webinar “MiFID II – What is the game plan now?” which included more than 500 industry participants. 

Ready or not, and despite that a delay has been announced, firms need to fundamentally change the way they approach trade and transaction reporting with MiFID II and other reforms shifting the entire regulatory landscape. 

No longer is it simply effective enough for firms to have a point-to-point solution for each regulation. The substantial amount of granularity that MiFID II will require – including a range of 65 to 85 data fields– coupled with the constant state of flux of other reporting regimes beyond MiFID II, such as European Market Infrastructure Regulation (which is currently under review), are now forcing firms to realize they need to have an all-encompassing regulatory strategy in place.

But as with any major revamp of longstanding practices and procedures, there are challenges. 

For one,  you not only need to reevaluate your regulatory reporting in a more strategic fashion than in past years, you also need to ensure that the strategy you adopt is within the industry norm to demonstrate to regulatory bodies that your standing is in a practical position moving forward. 

For another, the costs of keeping up-to-date with the fluid regulatory environment are rising. In fact, $36 billion has been spent on regulatory compliance solutions in the capital markets since 2013. 

As regulators seek more transparency around the parties involved pre- and post-trade, use more data identifiers, conduct peer reporting comparisons, and look for efficient reconciliation, the need for a comprehensive rethink of how you’re managing your data, operational systems, external providers and costs is clear. 

The new reporting landscape requires a regulatory solution that meets the following requirements: 

• Compliance governance – The system must trace back the lineage of your data to validate any past or present transactions.
• Flexibility – The system must incorporate the request of multiple regulatory bodies and have the ability to adjust on the fly to normalize data in the format requested by any of the various regulatory bodies.
• Extendibility – The system must extend beyond just one regulation, such as MiFID II, to meet the requirements of other forthcoming regulations or amendments to existing regimes.
• Reconciliation – The system must demonstrate the complete lifecycle of events and transactions to easily retrieve, confirm and report data as needed.

Choosing how to deploy your internal resources and external service providers in an increasingly complex environment is a large undertaking. However, an important factor to keep in mind as you migrate over to a new regulatory strategy is the similarities between past requirements and new demands.

The ability to observe and learn from what did and didn’t work under previous regimes, particularly for the operating model and control framework that has facilitated your reporting up until now, is a vital component to improve your compliance and data governance processes for MiFID II and other upcoming regulations, while also keeping your costs low.   

Technology failures will undoubtedly occur. Your operating model is the key element that will allow you to efficiently address any issues without impeding your progress.