Transaction Reconciliation

Regulators are fully aware of how frequently firms conduct reconciliations. It is therefore in your interest to perform them regularly and thoroughly to reduce the likelihood of attracting regulatory attention.

Reconciliation is a regulatory requirement*, not a nice to have, and it is easy for the regulator to identify which firms are consistently carrying out reconciliations and, more importantly, which firms are not, since part of the process involves interacting directly with the regulator.

To perform a reconciliation, firms must request data from the regulator where available. For the FCA, this takes the form of an MDP file, obtained by executing entities through a data extract request on the MDP portal. By running a simple report, the FCA can quickly identify which firms have requested MDP files and which have not.

For the firms that do request MDP files, the FCA can also see how frequently they do so. Although there are no rules set in stone regarding how often reconciliation exercises must be carried out, the frequency should be proportionate to the size of the firm, its trade volume, and the complexity of the instruments traded.

Regulators take this requirement seriously. In the FCA’s case, this is evidenced by the publication of not one but two Market Watch articles on the subject. Market Watch 65 reminded firms that “MiFID II regulations (RTS 22, Article 15, Clause 3) requires firms to have arrangements in place to ensure transaction reports are complete and accurate. This includes testing and regular reconciliation against samples of trade data.”

Market Watch 70 reinforced this message by publishing statistics showing how many firms were requesting and downloading their data - and, perhaps more importantly, highlighting the number of firms that were not. With the latter figure higher than the former, the FCA made clear that transaction reconciliation remains an area of active focus.

The FCA will likely use MDP Portal statistics as evidence of non-compliance with MiFID II regulations (RTS 22, Article 15, Clause 3). To avoid being caught out, firms should regularly request MDP files from the portal and reconcile them against their own trade files. If internal resources are limited, this process can be outsourced to third parties such as Qomply.

* MiFID II regulations (RTS 22, Article 15, Clause 3)