As transaction reporting remains central to market abuse surveillance, firms must take ownership of evaluating the adequacy of their first, second, and third lines of defence, ensuring they are clearly separated, genuinely independent, and effective in practice.
Where Regulatory Reliance Exposes Control Tension
MiFIR transaction reporting has always served a clear and fundamental purpose: to support the detection and investigation of market abuse. What has increased over time is regulatory reliance on transaction reporting data, and the focus on whether firms can demonstrate that reporting outcomes are complete, consistent, and explainable.
In that context, frameworks that once appeared sufficient are now being examined more closely, particularly where independence, documentation, and assurance have not kept pace with changes in activity and operating models.
At the same time, regulatory reform, including CP25/32, is reshaping the reporting landscape. While simplification and scope reduction are welcome, the underlying supervisory reliance on reporting data remains unchanged. In practice, this means firms are expected to demonstrate not just compliance, but control.
Why Regulatory Reform Heightens the Independence Challenge
Regulatory change acts as a stress test for reporting governance. As firms interpret and implement new requirements, attention naturally shifts toward delivery, timelines, and technical readiness. In this environment, weaknesses in segregation of duties, documentation, and independent oversight are more likely to surface before they are fully understood or resolved.
Without deliberate challenge, firms risk embedding legacy assumptions into new frameworks, carrying forward control weaknesses rather than resolving them. The question is not whether firms can implement regulatory change, but whether they can do so on a foundation of evidenced control across all three lines of defence.
The Lines of Defence
This expectation places particular strain on the three lines of defence. In a regulatory reporting context, the first line of defence is typically the function responsible for the creation and submission of transaction reports. The second line is usually the compliance function, with responsibility for oversight across a broad range of regulatory requirements. The third line is most often internal audit, where one exists, or an independent external reviewer providing periodic assurance.
In principle, this model is well understood. In practice, transaction reporting often stretches it.
In many organisations, the activities that make up transaction reporting, designing reporting logic, operating daily processes, resolving exceptions, and managing remediation sit firmly within the first line. However, that first line is not always a purely operational function. Compliance teams are often drawn into first‑line activity out of necessity, filling gaps in expertise, resourcing, or system capability. When this happens, the intended separation between the first and second lines begins to blur, and the independent control the model is designed to provide is weakened.
Second‑line oversight, where it exists, frequently relies on management information generated by the same teams responsible for reporting. While this can provide visibility, it limits the depth of challenge, especially where reporting logic is highly technical, assumptions are undocumented, or issues have become familiar over time. Third‑line assurance, meanwhile, is typically periodic and retrospective, offering point‑in‑time comfort rather than continuous confidence that reporting frameworks are operating effectively.
Regulatory change amplifies these weaknesses. As firms prepare for new requirements, attention naturally shifts to implementation and delivery. Without clear segregation between first‑line execution, second‑line oversight, and third‑line assurance, there is a risk that underlying deficiencies are embedded into the new regime. From a supervisory perspective, belief is not enough; firms are expected to evidence the accuracy of their reporting through independent challenge, monitoring and assurance.
Erosion of Independence
The cumulative effect can be a gradual erosion of independence. Known issues are accepted rather than challenged. Control effectiveness is inferred rather than evidenced. Remediation focuses on immediate fixes instead of addressing underlying data, logic, or governance weaknesses. Delivery pressures and resourcing constraints can further limit the depth of investigation, allowing errors to compound unnoticed.
The risk is not theoretical. Reporting frameworks can appear compliant on paper while containing hidden errors, inconsistent assumptions, or undocumented logic that only surface under scrutiny. By the time issues are identified, often through regulatory engagement or formal review, remediation has become broader, more complex, and more disruptive to business‑as‑usual activity.
In this context, effective segregation of duties is not theoretical best practice. It is central to demonstrating control during regulatory change, ensuring that transaction reporting frameworks are not only compliant, but independently challenged, supported by evidence, and fit for purpose as expectations continue to rise.
Embed Independence into Reporting Governance
To address the governance and independence challenges firms face, and to prevent risks from compounding during regulatory change, firms should consider the following actions:
- Clarify ownership across the three lines of defence, ensuring that responsibility for delivery, oversight, and assurance is clearly defined and not implicitly shared.
- Introduce independent monitoring and assurance of reporting accuracy and completeness, using sampling, reconciliations, and objective challenge separate from day‑to‑day reporting operations.
- Test reporting outcomes against regulatory expectations, not just internal interpretations, to ensure data is complete, accurate, and capable of supporting effective market abuse surveillance.
- Ensure issues are investigated to root cause, rather than resolved through tactical fixes that allow errors to re‑emerge elsewhere.
- Integrate independent challenge into change programmes, so new regulatory requirements are implemented on a foundation of proven control rather than assumption.
These steps help shift transaction reporting from a function that relies on trust and familiarity to one that is supported by evidence and objective oversight.
Independent Perspective Supports Durable Compliance
Many transaction reporting frameworks evolved in response to the MiFID II regulatory deadline of 3 January 2018, rather than through deliberate planning. As a result, weaknesses can remain hidden until exposed at the most disruptive moment.
An independent perspective helps firms see their reporting frameworks as regulators do. It enables objective assessment of completeness, accuracy, and control effectiveness, and highlights where assumptions, logic, or data dependencies have not kept pace with changes in activity, systems, or personnel.
This perspective is particularly valuable during periods of regulatory change, when operating models are under pressure and historical assumptions are being tested. By identifying root causes rather than symptoms, firms can reduce the likelihood of repeated remediation and focus effort where it has the greatest long‑term impact.
Confidence in Reporting Supports Confident Growth
In an environment where transaction reporting underpins market abuse surveillance, credibility matters. Firms that can demonstrate robust segregation of duties, independent assurance, and defensible reporting outcomes are better positioned to engage constructively with regulators, adapt to reform and grow without accumulating unmanaged risk.
Independent oversight is not about replacing internal expertise. It is about strengthening it, ensuring that reporting frameworks remain resilient, explainable, and credible as expectations continue to rise. For many firms, external assurance and a free transaction reporting review can provide additional objectivity, challenge, and insight into hidden reporting risks.
Independent Transaction Reporting Assurance Strengthens Compliance
ACA supports firms across the transaction reporting lifecycle, from independent accuracy and completeness testing to governance enhancement, control framework design, and operating model optimisation. Support ranges from targeted diagnostic reviews to ongoing monitoring and managed services, helping firms reduce reporting risk, and strengthen confidence in regulatory compliance.
Firms can gain a clear, independent view of reporting risk through a free transaction reporting review delivered using ACA’s Regulatory Reporting Monitoring and Assurance solution (ARRMA). Combining data-led analysis with specialist regulatory expertise, ARRMA helps uncover hidden errors, identify root causes, and assess whether reporting frameworks are sufficiently robust to support regulatory change and business growth.
By combining independent monitoring with practical advisory support, ACA helps firms understand where operational complexity, control weakness, and regulatory risk sit, enabling targeted remediation that delivers lasting improvement rather than repeated short-term fixes.
Take a proactive approach to identify reporting risks before they escalate.