MiFID II reporting rules perplex buy-side
MiFID II imposes reporting obligations on buy-side firms, a requirement they have not been subject to previously. They must overcome a steep learning curve to resolve reporting challenges that sell-side firms have successfully addressed in the past. A key aspect of the implementation strategy will be to ensure co-ordination between their transaction reporting and record-keeping activities, which will aid effective compliance while mitigating inherent challenges.
A number of buy-side entities will be considered an ‘Investment Firm’ under MiFIR/MiFID II and must now prepare to fulfil the respective reporting requirements. In doing so, these firms must adopt a strategic implementation approach that is forward-looking and co-ordinates well with other MiFID II implementation aspects.
A key challenge for these firms arises from the fact that while it has been possible to delegate MiFID I transaction reporting to the sell-side, buy-side reporting involvement is mandatory for some trading instruments and jurisdictions under MiFIR/MiFID II. In addition, buy-side concerns regarding client/staff data protection will also eventually result in a preference to report themselves. The T+1 transaction reporting deadline adds further complexity, over and above the increase in required reporting detail (including personal information fields and additional fields such as short-sale indicator).
Despite these and other challenges MiFID II poses to the buy side, many firms seem unaware that it’s on the horizon. Panel discussions at The Trade’s MiFID II: Best Execution event (04/10/2016, Paris) underscored the lack of clarity among buy-side firms regarding their upcoming transaction reporting obligations, and the consequences (including penalties) of non-compliance. For example, a key issue that arose was the need to avoid double reporting of trades (by the buy and sell sides) and the associated fines. It is imperative that these and other similar considerations be factored into the transaction reporting approach early on to avoid a poorly designed solution and, ultimately, resultant penalties.
By recognising their MiFIR/MiFID II reporting obligations early and planning proactively, buy-side firms can organise transaction reporting activities in co-ordination with their client reporting and record-keeping workstreams to ensure compliance at the required level of detail. With the countdown to the January 2018 implementation deadline well and truly underway, firms that adopt an ‘eyes-wide-open’ approach to MiFID II and get going can still ensure robust operating model design and smoother implementation, paving the road to timely, accurate fulfilment.