For some it will have been a long six weeks since MiFID II went live on January 3rd. As with any large-scale project, MiFID II has undergone a series of teething issues for the whole financial sector, some more serious than others. The problem here is that this is a transnational regulation that has cost the financial services industry billions of pounds and euros to be ready for transaction reporting ahead of the go-live date.

It comes therefore as no surprise to anyone that the sheer scale of transactional data and files would overwhelm the European National Competent Authorities (NCAs) at some point. To date we have witnessed processing and sequencing issues at the FCA resulting in a backlog of approx. 15 million reports with one major ARM alone. Other NCAs are unable to ingest reports at their portals and many member states only being able to accept reports sent by email.

After years of running large scale programmes of work to ensure compliance with MIFID II, many in the industry are displeased with the current status. A participant at a recent MiFIR forum complained that Transaction Reporting is effectively in a state of User Acceptance Testing (UAT) while running live, production data. Not an ideal scenario when billions have been spent by buy and sell side firms to meet the deadline, especially when we consider that the regulation was deferred by a year at regulator’s request.

Fragmented Approach

A total of 14 member states are yet to fully transpose MiFID II into national law. The mechanism by which data is transferred is not a determining factor for MiFIR compliance, but the lack of IT readiness by NCAs does underscore the complexity of the regulation to aggregate and analyse millions of transactions on a daily basis. It has also become apparent that the various NCAs have differing interpretations of the regulation and therefore do not have harmonised validation standards, a particular issue for ARMs offering a multilateral Transaction Reporting approach.

Lack of Readiness on all Sides

Harmonisation of validation standards was always difficult to achieve, especially as the multidimensional approach has led to some misinterpretations of the regulatory technical standards (RTS). This is hardly surprising given the number of agencies involved in the process, the interdependencies of the contents within the 65 fields as well as formatting and lack of clarity regarding the eligibility of some of the instruments.

There is also a question of whether or not enough time was given for testing leading up to January 3rd. During the first week a number of transactions were rejected which had been successfully submitted during the test period at the end of 2017. In addition, it appears that there were a number of differences in interpretation between ARMs and the FCA, which has led to last minute alterations of the rules engines.


UnaVista recently reported that the major cause for rejections are simple in nature. They cite that duplication of reports and transactions are by far the largest factor. Other reasons for rejections include cancelled transactions that were not previously reported as new, invalid or missing ‘Execution within firm Type’, missing Instrument Classification (CFI) where ISIN is not Trading on a Trading Venue (ToTV) or on the Financial Instruments Reference Data System (FIRDS) or simply missing the Underlying Index Name. All of the above and other significant issues all relate to a lack of internal control procedures. MiFIR requires complete data integrity, which can only be achieved by the reporting firm. The ARM will apply the RTS rules to validate transactions ahead of NCA submission and will be looking for obvious errors. For example, when entering the national identifier for a person the ARM is not able to determine whether or not the reporting firm has applied the hierarchy for identifiers as required by the FCA – it will apply a rule to see whether or not a valid ID has been populated in field 7.

Smooth Waters Ahead?

Steven Majoor was quoted on the 3rd January as saying that there will be issues “in the coming days or months”. Given the severity and nature of the problems we are witnessing today, it is likely that these issues will persist into Q2 or even Q3. At the beginning of MiFID II, Transaction Reporting was seen by many as the least problematic of the regulatory technical standards. The reality of shows that data integrity might just be the low hanging fruit that requires a long ladder. While the need for the so-called three-way reconciliation (reporting firm versus ARM versus FCA) required under RTS22 Article 15 seemed like a necessary evil just a couple of months ago it is now more relevant than ever. While the upstream issues continue to dominate the IT agenda for ARMs and the FCA, firms are now seeking to build tighter controls to ensure that they can demonstrate absolutely control and integrity of their data.

To find out more download our latest whitepaper: MiFID II Transaction Reporting: Be in Control.

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