The British Financial Conduct Authority’s latest Market Watch publication (number 62) shows that firms are still experiencing difficulties when reporting transactions to it. Despite their regulatory obligation to check the completeness and accuracy of their reports, the FCA is still encountering data of questionable quality as it monitors firms and talks to them.

Inaccuracies are hampering the FCA's attempts to search for signs of market abuse, so what type of error is the FCA continuing to unearth?

Transaction prices

The FCA states: "Price currency is reported inconsistently with the currency in which price is expressed. Price multiplier is reported inconsistently with the values provided in Field 30 (quantity) and Field 33 (price), or populated with a value that is not an accurate representation of the number of units of the underlying instrument represented by a single derivative contract."
 
Unique national identifiers

Firms are inaccurate in their reporting of national identifiers, including 2nd- or 3rd-priority identifiers. They are using default identifiers with the same default value to identify more than one individual.

Decision makers

The FCA has spotted some firms misreporting in this area by mirroring the contents of the 'buyer' and 'seller' fields (fields 12 and 21). Others are failing to write anything in the 'decision maker' field. The FCA adds: "We have also noted investment firms identifying a fund as the buyer or seller where transmission is not taking place and we would instead expect to see the fund management firm identified."
 
How to identify an entity

Many a firm is populating the field marked 'executing entity' with the Legal Entity Identifier (LEI) of the broker to whom the order in question was forwarded instead of the firm’s own LEI. The FCA adds: "Where the transaction report is submitted by an ARM, Field 6 (submitting entity) must be populated with the LEI of the ARM."
 
Misuse of the INTC
 
The aggregate client account (INTC) is a convention used in transaction reporting to provide a link between the market side and client side of a transaction. The FCA has spotted many a firm misusing its aggregate client account by using the INTC convention to report an order for one client executed in multiple fills. The FCA has also seen this-or-that firm reporting flows in and out of the aggregate client account that do not 'net off' on the same business day. It is keen to see the aggregate client account not being used for any purpose other than one set out in the guidelines.

Indicator fields

Universally, firms are filling up indicators with default values when they should be leaving them blank or filling them with more meaningful information.

Messaging and sign-posting

The FCA is choosing to remind firms again that:

RTS (regulatory technical standard) 22 Article 15(2)  requires firms to notify it of errors promptly. They must reconcile front-office trading records with data samples provided by the FCA (RTS 22 Article 15(3)) regularly.

The FCA continues to highlight Transaction Reporting data accuracy as a key area for improvement. It is clear that the FCA considers that asset managers and other firms are not doing enough.

The FCA has stated previously that the number of data extract requests it receives suggests that some firms may not be aware of their regulatory obligations and may not be conducting regular or sufficiently thorough reconciliation. It knows who you are.

We know that the FCA has levied fines against firms that have not complied with the transaction reporting requirements that obtained before the European Union passed its second Markets in Financial Instruments Directive. The MiFID II rules are more difficult to obey and the FCA's expectations regarding the accuracy of data are clearer. It is difficult not to see the FCA taking enforcement action at some point in the future if firms do not address these matters. Indeed, it might use the Senior Managers & Certification Regime to hold individuals to account for transaction-reporting failures.

Tough but necessary

The reconciliation process can be tough because of the data formats, mappings and volumes but that is no excuse for not obeying the rules.

* Jonathan Wilson can be reached on +44 (0)20 3146 1869 or at jon@elliswilson.co.uk