FCA Publishes Market Watch 74


Charlotte Longman

Publish Date


Compliance Alert

  • FCA
  • Compliance

Improvements Have Been Made, But Data Quality Issues Still Exist

The UK Financial Conduct Authority (FCA) uses its Market Watch newsletters to highlight observations on market conduct and, on occasion, transaction reporting issues. This 74th issue, published on 25 July 2023, is the first related to transaction reporting in 2023 and some 10 months since the last edition that focused on the topic. So what does the FCA have to say for itself? In summary, some improvements in reporting are noted but issues around data quality persist. 

MDP and E&Os

As has become custom, the FCA highlighted the number of firms extracting data from the Market Data Processor (MDP). In 2022 this number was 745 Firms, out of circa 3000 executing entities. While this number is marginally higher than previously (+4% YoY), concerns remain that this is lower than required. Over two thirds of submitting firms still do not request data, leading to the inference that they are not conducting the necessary reconciliations between front office records and submissions, thus falling foul of the requirement in Article 15 of RTS 22. 

While the number of firms accessing the MDP has increased, the number of individual firms submitting Errors and Omissions (E&O) forms is down slightly in 2022 from 2021 (down 10% YoY). It is unlikely however that this is indicative of all matters being resolved; ACA’s own experience is that firms are still finding and resolving reporting issues going back to 3rd January 2018.

Validation Rule 269

Market Watch 74 includes a reminder from the FCA regarding Validation Rule 269, which automatically rejects transaction reports submitted more than 5 years after trade date. This includes corrections to previously misreported transactions. Firms should bear this in mind given implementation of the requirements is over 5 years ago. The FCA is clear here that it still expects notification of the old errors but does not require those reports to be cancelled and corrected. Additionally, the inclusion of the specific detail concerning this validation rule seems to imply that the regulator is aware of the existence of legacy errors that should have been corrected. 

Decision makers

Attention again has been placed on the identification of investment and execution decision makers. The focus, however, is not on the correct priority identifier, which has been highlighted by the FCA on numerous occasions previously, and from ACA’s experience, still problematic for many firms, but rather the FCA challenges firms’ methodologies and criteria for identifying those responsible for investment decisions or execution. A range of approaches was identified by the FCA, who then openly questioned the appropriateness of assigning primary responsibility to senior managers who oversee investment or execution decisions. There seems to be an indication from the regulator that their preference would be for those that have “practical involvement in those decisions at transaction level” to be noted in the relevant fields.

Complex trades

Complex trades are discussed, alongside a reminder for firm’s that the ESMA Guidelines should be followed when reporting these time of trades. Of utmost importance is the reporting of a single price and that the complex trade ID is completed.  

Article 4 transmission

The FCA reminded readers of the specific criteria surrounding Article 4 transmission agreements. Only when contracts for the reporting responsibility have been entered into, and the correct exchange of information takes place between the ‘transmitting firm’ and the ‘receiving firm,’ is a legitimate method of avoiding submitting transaction reports established. The FCA has contacted firms from whom it expected transaction reports, but had not been reporting; some firms responded citing they were a transmitting firm and the receiving firm was doing the reporting. The FCA has encouraged those who are operating under these arrangements to review the agreements and conditions and ensure they can provide evidence that the reporting component is included in the agreements and is being met.

Chains and transmission

Whilst the ESMA Guidelines are clear on this one, stating the “investment firm should only report its ‘part’ in the chain and therefore does not have to look forward or backwards in the chain beyond its immediate counterparty and client,” the FCA draws specific attention to this item. It has identified firms that have misidentified the buyer and seller in transactions reports in circumstances where a fund manager is being dealt with and the fund is being reported, or where an intragroup subsidiary is being executed with and the subsidiary’s client is reported. There is no ‘look through’ requirement in the rules, and therefore a thorough understanding of who is the client and counterparty is of critical importance to ensure complete and accurate reporting.

Data quality

As always with transaction reporting, the devil remains in the details and the FCA has sought to highlight a number of specific fields where is has seen data quality issues:

  • Price and Quantity: The FCA has identified a number of inconsistencies here and encouraged firms to follow market convention when determining which notation to use when reporting specific instrument types. It has also suggested that firms go so far as to confirm with counterparties to ensure consistency.
  • Venue and TVTIC: The FCA has cited section 5.4 of the ESMA Guidelines when responding to specific questions about reporting the venue and trading venue transaction identification code for off-exchange negotiated transactions where such have been brought under the rules of the venue. Given the FCA has specifically highlighted this scenario in the newsletter, we can presume that it has received a significant number of questions in this regard.
  • Fields 42-56 These fields are only required for instruments that do not have a specific ISIN, and are relied upon by the FCA to identify the nature and attributes of the specific instrument traded. It has cited the following errors and inconsistencies:
    • Price multiplier – which doesn’t reflect the accurate number of underlying instruments;
    • Expiry dates – either unreported, default, or dates preceding the dates of the transaction; and
    • CFI codes – conflicting with the instrument name or other details provided.

Instrument reference data

The FCA has also used Market Watch 74 to comment on instrument reference data (IRD) from which the Financial Instrument Refence Data System (FIRDS) is populated. IRD is the responsibility of trading venues and systematic internalises (SIs) who must submit reference data for all financial instruments admitted to trading, or that are traded on their platforms daily. 

The Regulator has noted that: 

  • Submission deadlines are not being adhered to, which has an impact on investment firms determining the reportability of certain transactions;
  • Trading venues are submitting data related to spot FX instruments, which are not classified as ‘financial instruments’ for reporting purposes, thus misleading investment firms concerning the instruments reporting ability; and
  • Erroneous IRD should be cancelled and corrected to ensure that FIRDS is complete and accurate. 

Supervisory flexibility

Hot on the heels of the Market Watch, the FCA also published a statement regarding its supervisory flexibility relating to a number of specific fields in transaction reports. This approach follows the temporary relaxation of the requirement to report the short selling indicator (Field 62) in January 2022 while the future of the field was determined. Additional temporary measures have now been implemented for the following fields:

  • Field 61 – Waiver indicator
  • Field 63 – OTC post-trade indicator
  • Field 64 – Commodity derivative indicator
  • Field 65 – Securities financing transaction indicator

The FCA will be reviewing these fields and has confirmed it will not be taking action against firms that fail to populate these fields correctly. The relevant validation rules will be disabled from September 2023 to ensure reports are not rejected by the MDP as a result of the policy change.

Our guidance

While the FCA has warned firms through prior Market Watch publications of the continuing issues associated with transaction reporting, the tone of some items is striking. Openly challenging methodology around decision makers is something of a change from the typical noting of common errors and gentle nod that firms should probably take a look. Firms would be advised to review their reports and arrangements against the specifically noted items to confirm findings or remediation plans to the appropriate committees. These actions will protect firms from being viewed by the FCA as those who “are not paying sufficient attention to our warnings on the importance of reporting transactions to us in a complete, accurate and timely manner”. You have been warned…

How we help 

Our services include: 

  • A free transaction reporting review to help identify problems in your regulatory reporting before the regulator does. Click here to book.

    This is conducted over ACA Regulatory Reporting Monitoring & Assurance (ARRMA), a unique service blending technology and consulting to identify transaction reporting errors and provide practical advice/support to resolve them. Our findings reveal that 97% of reports under MIFIR/EMIR contain inaccuracies, and on average each report has 30 separate error types. 
  • Market Abuse Surveillance, Employee Compliance, and Control Room tools designed to identify non-compliant trading and investment activity, and to monitor behaviours and the flow of sensitive information, all offered over our award-winning ComplianceAlpha™ regulatory technology solution.  
  • Scheduled and customised training courses to help you and your firm understand the regulatory framework and apply compliance.

Complete this form or call +44 (0)20 7042 0500, to speak with our team of market abuse and transaction reporting specialists, who are on hand to help you detect trading misconduct and identify failings in the completeness, accuracy, and timeliness of your trade and transaction reports.