Investment Firms Awaken to Little Known MiFID Regulation

Strong likelihood that your firm is not compliant.

25 June 2020

Up to recently, few investment firms were aware of an embedded requirement to conduct regular reconciliations of their front office trading records against those records sent to the FCA. In fact, from the start of MiFID II in 2018 to end of 2019, evidence suggests that only 18pct of investment firms were complying. Given these statistics, there is a strong likelihood that your firm is not complying.

In April 2019, FCA stressed “the importance of market participants maintaining adequate procedures, systems and controls to meet their transaction reporting obligations. This includes the requirement to conduct regular reconciliation of front office trading records against data samples provided by competent authorities. “

Since firms must request data extracts from the FCA in order to conduct a transaction report reconciliation, the FCA can easily identify the firms who are conducting reconciliation of their transaction reports.

Even though the 2-year period from the start of 2018 to the end of 2019 saw only 18pct of firms complying, there is new evidence to suggest an uptick in compliance.

In May, the FCA disclosed, through a FOI request, that during the 4-month period between 1 January 2020 and 30 April 2020, 540 firms (15pct of investment firms) requested a transaction reporting data extract from the FCA. This amid a Covid-19 lockdown.

If your firm has not yet conducted a transaction report reconciliation, then it is now time to consider instituting a framework to conduct periodic reconciliation exercises in your firm. The FCA does monitor requests for data extracts and it is a relatively easy task to identify firms not complying.

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