Key Components to Successful Reconciliation
Completeness
Firms are required to ensure the submission of all reportable transactions, avoiding both under-reporting and over-reporting. A proactive approach involves assessing the reportability of new products before execution and periodic reviews.
“This is an area I have seen firms struggle with, especially where they are manually checking through FIRDS to confirm reportability. Qomply offers a free checker that allows firms to search hundreds of ISINs, providing an efficient starting point,” states Fulugunya.
Accuracy
Beyond simple data matching, firms should verify the accuracy of their reports. Concepts within the regulation, such as reporting aggregated orders, accurate representation in a chain and proper reporting of decision makers, require meticulous scrutiny at a line-by-line and field-by-field level.
Timeliness
Timely submission within a one-business-day (T+1) deadline is critical. Firms must focus on meeting this deadline consistently and identify instances where details from brokers may not be received promptly.
Reconciliation Frequency and Representative Samples
“Determining the frequency of reconciliations depends on various factors, including the complexity of trading scenarios and the volume of transaction reports. While monthly reconciliations are generally acceptable, more frequent reconciliations reduce the duration of potential issues,” outlines Fulugunya.
Regulatory guidance suggests that a representative sample should include all trading scenarios, covering instruments, client types, trading capacity, and order types. For high-volume retail trading platforms, this sample could be as high as 90 per cent of total volumes.
Remediation and Back Reporting
Identifying discrepancies is only the first step. For those firms reporting to the FCA, remediation involves submitting an Errors and Omissions (E&O) notification. During her six-year tenure at the FCA, Fulugunya reviewed more than 400 E&O notifications.
Validation Rule 269: Reports submitted for the first time or as an amendment with a trade date exceeding five years will receive a CON-281 rejection. Despite the inability to submit, firms are still expected to provide details of the impacted reports within the E&O notification.
The Shift to Managed Services
Firms are struggling with the rules without internal resources. This has resulted in a shift to delegated models.
“At Qomply, we offer a service that enables firms to save up to 50 per cent of their reporting costs while ensuring requirements are aligned with regulator expectations.”
This encompasses the entire process: report creation, daily exception management, ARM/FCA submission, and monthly three-way reconciliations.
Read full article here: Asset Servicing Times, January 2024 Edition