MiFID II – are your systems up to the biggest regulatory challenge of all?

31 May 2016

Bill Blythe

Of all the regulation that has hit the EU financial industry since the financial crash, MiFID II looks set to have the biggest impact.

Building on MiFID I, which aimed to introduce a harmonious transaction reporting regime across Europe, MiFID II places the focus firmly on market integrity; shifting the emphasis away from detecting and investigating market abuse, to encouraging fair and orderly market functioning. In short, reducing risk, protecting everyone involved, and removing any opportunity for rogue behaviour to occur in the first place.

But in meeting this aim, the detail of the directive is punishing; the number of data fields for reporting will increase three-fold, new asset classes and firms will be brought into scope, and the timescales for reporting will tighten.

Now due for implementation in 2018, there’s little time for banks and FIs to get their houses in order – but it is possible to prepare and improve existing processes well within the timeframe, if the appropriate steps are taken right now.

What’s your exposure under MiFID II?

For any banks who haven’t yet implemented a strict data governance platform, MiFID II is the opportunity to do it. Siloed controls and inflexible, legacy technologies, are rarely up to the challenge of handling and scrutinising the multiple sources of data now passing through them; in particular validating the appropriate rules and reporting required.

As data passes between systems from front to back, transaction and trade reporting can become a game of Chinese Whispers. As each stage passes through another system (for risk confirmation, settlement or accounting for example) the data is manipulated, and it can take just a single rogue decimal point or incorrect time stamp to place the entire chain at risk of non-compliance.

With the heavy increase in reporting requirements under MiFID II, the chances for error will only increase.

Compliance checklist for MiFID II – are your systems up to the challenge?

Can you answer all these questions with confidence?

  • Can your trade/ transaction reporting platform verify and validate multiple sources of data in real-time?
  • Can it ensure integrity between multiple internal systems, the ARM and the regulators?
  • Can it automatically deliver the correct information, in real-time to the relevant Trade Repository?
  • Are regulatory rules and logic pre-built, to automatically determine which body a trade needs reporting to?
  • Does your platform offer the flexibility to adapt to further proliferation of MiFID?

If you answer is ‘no’ to any of these questions, you may be at risk.

No-one can sit back and relax

It’s important to stress that although the directive is EU in scope, it will have a global impact due to the cross-border implications of trade reporting. Any non-EU investors and traders wiping their brows with relief that they’re clear of any obligations may have to think again.

Similarly, for buy-side firms who previously relied on brokers to handle their trade reporting, in many instances the onus for reporting will now reside with them, including the regulations around data integrity and control.

Aligned to so many other regulations, some banks and FIs are using MiFID as the catalyst for a single, regulatory change programme – and it certainly makes sense to avoid duplication of effort and view regulatory compliance as a holistic challenge.

The good news is that newer data integrity platforms, like CTC from Gresham, can shoulder the burden of MiFID II and other regulations recently introduced, or coming soon. With the ability to handle multiple data from multiple sources, automatically verifying and validating trades in real-time and delivering them in the correct format to the relevant ARM (whilst validating the appropriate rules under MiFID), CTC closes the reporting ‘loop’, ensuring consistency, reducing risk, and guaranteeing integrity.

With the agility to add further regulatory controls within days, it takes away the pain of MiFID II – and any other major changes the regulators decide to challenge the industry with down the line.

For more on MiFID II and how you can meet your data integrity obligations before the directive goes live in 2018, download Gresham’s latest guide.

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