Trade and Transaction Reporting
The total of industry fines relating to trade and transaction reporting is currently in excess
of £150million with the largest individual fine of £34million levied in 2019
“Firms must have proper systems and controls to identify what transactions they have carried out, on what markets, at what price, in what quantity and with whom. If firms cannot report their transactions accurately, fundamental risks arise, including the risk that market abuse may be hidden.’
Mark Steward,
FCA Executive Director of Enforcement and Market Oversight.
FCA Press Release – 19th March 2019
Executive Summary
As a result of the financial crisis in 2008, new legislation was introduced with the aim of increasing stability and transparency in the financial services industry, one of the main requirements being Trade & Transaction Reporting (T&TR). All major trading jurisdictions; Europe, US, & Asia have introduced detailed reporting requirements such as MiFID, EMIR, SFTR, Dodd-Frank, HKMA, MAS.
T&TR is a complex area that many firms have struggled to fully implement. Failure to submit complete and accurate reports can lead to reputational damage, costly internal and external reviews and result in significant regulatory penalties and remediation programmes. The total of industry fines relating to trade and transaction reporting is currently in excess of £150million with the largest individual fine of £34million levied in 2019.
T&TR is not just about reporting. Each firm needs the policies and procedures in place to monitor its own reporting environment. Firms must have controls in place to identify under or over reporting, and to identify when there is a problem with the contents of the reports. Procedures need to be in place not only to identify exceptions, but also to correct them and resubmit them.
Firms must also be able to demonstrate that they have full oversight and control of the trade life cycle in order to fulfil its T&TR obligations. Doing so requires a series of interconnected reconciliations and integrity checks to monitor and resolve any data issues as they occur. Additionally, increasing numbers of firms are implementing automated assurance processes to ensure the completeness, timeliness and accuracy of reported trades. This can be difficult to achieve in an environment where processes are manual or involve several different teams and systems.
New Link Consulting has been supporting it’s clients with a number of T&TR challenges including assurance testing, current state assessments, operating model design, governance improvement, regulatory expertise and change management.
Assurance Controls - What should be in place?
The key T&TR assurance controls that firms should have in place for each reportable jurisdiction are summarised below.
New Link Consulting can assess the existence and effectiveness of these controls. This will include all transactions reported by the firm directly and those where reporting has been delegated to a third party.
A Robust Control Framework
Our approach to a review of the T&TR control framework review will include benchmarking a client’s current state to a ‘best in class’ environment and consider the controls a regulator would expect to be in place.
A well-designed and embedded T&TR control framework should be based on a robust three lines of defence (‘3LoD’) model. This would include clear risk ownership, and key controls with an emphasis on preventative controls where possible. Assurance and environmental controls are also pivotal, all operated within an appropriate governance and policy structure, with transparent roles and responsibilities allocated across the lines of defence.
The following outlines a typical T&TR Control Framework and summarises the associated responsibilities for each line of defence. The existing relative strengths, weaknesses and gaps in the current state T&TR capability will be considered against this framework and lead to set of detailed recommendations to close identified gaps.
How Can New Link Consulting Help?
We work with clients to ensure that they have an efficient T&TR environment and robust controls in place to meet regulatory requirements.
We leverage our market insights and stay cognisant of future regulations and political shifts to ensure our solutions are as ‘future proofed’ as possible. Here is an overview of our current T&TR focused services:
Assurance Testing
Working with our technology partners we can review the accuracy and completeness of all historical reported transactions and assess the need for on-going automated monitoring and assurance testing. This covers:
- Creation of a tailored test pack (transaction reporting control matrix)
- One off or periodic assurance reviews
- Independent data accuracy testing of all instruments, scenarios and data fields
- Developing front to back quantitative and qualitative reconciliations of your transaction reports to the regulator
Additionally, we can assess the reportable population for future regulations (e.g. SFTR) and undertake assurance on a firm’s reporting mechanism
Current State Assessment
We will ensure that a robust risk assessment has been completed over your existing control framework and highlight any gaps to regulatory standards and ‘best in class’ aspirations.
This will cover:
- Identifying and documenting all trade reporting risks and controls
- Deep-dive reviews and regulatory investigations
- Reviewing and guidance on effective oversight and control mechanisms
- This is most effective when undertaken in parallel with assurance testing for a more holistic approach
Operating Model Design
Following a current state assessment, our practitioners can work with you to design an optimised target state operating model for all T&TR activities. This will take into consideration:
- The 3LoD model and industry best practices
- Current and future regulations (e.g. SFTR)
- Reporting requirements specific to your trading scenarios and product mapping across all systems
- Guidance on effective oversight and control mechanisms
Governance Improvement
Our practitioners can also provide governance specific reviews. Our observations and recommendations will consider the overall T&TR governance framework and how this impacts the culture within the firm covering:
- Apportionment of responsibility and accountability
- KCIs and KRIs to monitor T&TR control effectiveness. E.g. Control dashboards, exceptions reports.
- Documentation (policies, operational procedures and reporting logic
- Establishment of control catalogues (a library of all key T&TR controls, including control description, owners, location, effectiveness etc.)
Change Management
We can also provide project management capabilities to deliver structured change in your T&TR function. This includes:
- Managing or assisting with transaction reporting quality reform programs
- Implementing effective change management controls
- Documentation of best practice change management methodologies for future projects
- Preparing and delivering technical and operational staff training
Regulatory Expertise
We have the knowledge and experience to advise and support on regulatory matters including reputationally sensitive matters:
- Regulatory reform implementation and guidance including MiFID II and MiFIR
- Assisting firms and senior management to gain assurance to sign a transaction reporting attestation letter with confidence to the regulator
- Preparing for visits from regulators to review transaction reporting
- Preparing and delivering regulatory staff training across departments
Address all of These Challenges
Please contact us for further information
Passionate Entrepreneurs
Based in London, the beating heart of the global Financial Services industry, New Link Consulting provides a comprehensive portfolio of consultancy services to our clients, including buy-side, sell–side and market intermediaries. Innovation is at the heart of what we do – from our core service delivery through to our approach to developing industrywide solutions. New Link Consulting’s core areas of expertise include Regulation, Operational Risk and Control, Process Improvement and Business Integration.
Our Engagement Leads uniquely combine a deep industry knowledge, gained through years of direct experience working within City financial services organisations, with innovative change management skills. This subject matter expertise enables us to tailor our services to meet the explicit requirements of our clients. This results in a collaborative approach to problem solving and exceptional delivery standards, even when dealing with the most complex and challenging engagements
New Link Consulting LLP,
1st Floor, 65 Leonard Street, London, EC2A 4QS,
United Kingdom
+44 (0)203 826 9700
info@new-linkconsulting.com
www.new-linkconsulting.com
Need any help?
Our modular approach can be used to customise assistance where appropriate. Gaps in compliance may already be clear and if so our trusted execution experience will allow the gaps to be closed with confidence.
Our consultants have many years of experience dealing with regulatory and data implementations across the financial sector and beyond. By drawing on a wealth of practical experience we can assure our clients a first rate service.
We can also include assistance from our legal partners to interpret the regulation according to your bespoke needs. Translating these interpretations into requirements that fit your business. Our cyber-security partners are well placed to provide expertise surrounding data storage, usage and security