FCA Highlights Inefficiencies in Reporting: Remediation, Back Reporting & Breaches

In its latest publication, Market Watch 82, the FCA reinforces the importance of accurate and timely transaction reporting under MiFID, highlighting ongoing weaknesses and expectations for remediation across the industry. These reporting requirements, in force since January 2018, mean that firms are expected to have robust processes for identifying, addressing, and disclosing regulatory reporting issues in an accurate and timely manner.

The FCA has identified three specific inefficiencies that firms must improve on – remedial timelines, back reporting and breach notifications. This is relevant to firms subject to MiFID transaction reporting requirements and UK EMIR and SFTR reporting requirements and the recommendations are intended to enhance existing processes, not to create an additional burden for firms.

Remedial Timelines

Remediation is the process for firms to address deficiencies, errors and non-compliance in their transaction reporting data, systems and processes. The FCA understands that complex issues will take longer to remediate, however other issues should be remediated swiftly to avoid unnecessary risk. Common themes for delayed remediation have been identified as:

• Inefficient internal processes, including siloed teams and lengthy internal approval chains;
• Insufficient resourcing, meaning remediation work competes with other business priorities;
• Firms tackling symptoms rather than the root cause of a problem, causing the issue to repeatedly resurface;
• A reactive compliance culture means that firms only address issues when prompted rather than proactively tackling them;
• Weak governance, meaning there is a lack of structure and accountability causing a loss of momentum and prolonged remedial work.

The FCA would like to see remedial plans put forward and implemented quickly, root causes investigated and a proactive culture towards remediation work.

Back Reporting

Back reporting is the process in which firms correct inaccurate and incomplete transaction reports to ensure the data is trustworthy and can be used to detect and investigate market abuse. Common causes of delayed back reporting include:

• Firms focusing on the root cause of the problem but not correcting all appropriate historical reports. The firm is non-compliant until it completes all back reporting;
• Firms not taking a risk based approach to their remediation work;
• Firms do not have proper access to historic data. This could be due to poor archiving or system migration.
• Insufficient resourcing impacts BAU processes, meaning current transactions are not being accurately reported.

The FCA’s concerns about these four causes of delayed back reporting are that they indicate poor governance – including data governance, a lack of accountability and poor non-financial risk management – particularly operational risk management. The FCA would like to see back reporting being given sufficient resource that is fully completed in a timely manner without impacting BAU work.

Breach Notifications

The FCA wants to receive clear breach notifications that accurately describe the issue, and the root cause and highlight gaps and weaknesses in systems, controls and data governance. Specific details on every section should be provided wherever possible and in cases where this is not possible, justification should be given. Caution should be used when attributing the root cause of an issue to human error as the FCA’s view is that improvements in process, controls or oversight should have prevented the issue before it happened.

Thistle Initiatives’ View

The FCA sees transaction reporting as a key tool to identify market abuse and prioritises it accordingly. Firms should take care to ensure their transaction reports and associated remediation work are completed quickly and efficiently so that the data the FCA receives is reliable and accurate.

How We Can Help

Thistle Initiatives can support you with:

• Carrying out an audit of your current transaction reporting arrangements;
• Identifying areas of weakness and how to improve these;
• Providing assistance with enhancing governance processes, systems and controls to promote good outcomes for consumers and proactive risk management.

Meet the Expert