Brexit and MiFID II Transaction Reporting

Market Watch 64 is a timely reminder that the count down to the end of the Brexit Transition on 31 December 2020 is underway.

Back in June 2016 FCA said that EU Regulation would continue to apply to UK firms until such time as changes are made. FCA has also said they intend the transition to be as smooth as possible and the underlying mechanics of reporting or the reporting logic will remain as it.

The changes are much more practical such as the Relevant Competent Authority field defaulting to GB and FCA Financial Instrument Reference Data System (FIRDS) replacing ESMA FIRDS which the FCA has been feeding with live production data so that its database of instruments is complete by the end of the Transition. One to watch is that the Brexit Statutory Instrument for Transaction Reporting provides that FCA does not have to cooperate with the EU counterparts if there is no reciprocation. That could introduce some challenges if those provisions have to be exercised.

A key message from Market Watch 64 is a reminder of what FCA said on 1 February 2019: that there will be no transitional relief. If you cannot comply at the time of Brexit you will need to be able to back-report missing, incomplete, or inaccurate transaction reports as soon as possible. If you find yourself in that situation, make sure you are proactive in your conversations with supervision.

If you haven’t already you need to begin your preparations to either connect directly to the FCA’s Market Data Processor (MDP) or use your ARM to make your Transaction Reports to the FCA by the end of the Brexit Transition. Which ever you are using make sure that you have tested that you or your third-party provider does have access to FCA FIRDS.

As we note in our How to Guide on MiFID II Transaction Reporting, FCA places great importance on compliance with Principle 3 “take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems” in relation Transaction Reporting. It is therefore really important that you have a Senior Manager with oversight of your Transaction Reporting. Your SMF needs to have oversight of your Brexit preparations for Transaction Reporting, which should include making use of the Industry Test Environment of FCA FIRDS both to download full and delta reference files as well as to test your data submissions

FCA has said that their enforcement action will be proportionate given the scale, complexity, and magnitude of some of the changes brought about by Brexit. So FCA is unlikely to take action if you took reasonable steps to prepare, so make sure that you have a record of the steps you have taken.