FCA opens industry discussion on UK transaction reporting

The FCA published a discussion paper (DP) on Improving the UK transaction reporting regime on 15 November 2024 (DP 24/2).

The DP sets out a range of options for evolving the transaction reporting regime under the UK Markets in Financial Instruments Directive (UK MiFID), as well as instrument reference data requirements. The FCA is seeking market participants’ views on a wide range of questions aimed at improving the quality of the data reported to the regulator, as well as reducing unnecessary reporting burdens on firms.

What does this mean?

The DP contains background and data on the UK transaction reporting regime, which results in the FCA receiving around seven billion transaction reports each year. The FCA states that the markets, and its market data needs, have evolved since the regime was implemented in 2018 so it is considering a range of potential changes.

The FCA asks market participants’ responses to the DP to take account of the likely potential for further divergence between UK and EU transaction reporting requirements. The FCA also notes that market participants have invested in systems and processes to meet their transaction reporting obligations and that it will therefore be mindful of any changes needing to be justified by benefits.

The options set out in the DP can be grouped under three issues: improving data quality, making firms’ reporting requirements more proportionate, and enhancing the FCA’s ability to undertake market monitoring.

Improving data quality

Many of the issues covered in the DP relate to challenges associated with transaction reporting for OTC derivatives. Examples include identifying whether the traded instrument carries a reporting obligation, and the need to provide a daily International Securities Identification Number (ISIN) for contracts with a daily rolling expiry date.

To address these challenges, the FCA puts forward a range of options for changes to the requirements for OTC derivative identifiers (ISIN or a ‘modified ISIN’, or the unique product identifier (UPI) or UPI+). The FCA also raises the possibility of providing additional guidance on the concept of instruments traded on a trading venue (TOTV), which determines the instruments in scope of the transaction reporting obligations.

The FCA also asks for market participants’ views on whether data quality could be improved through the use of new technologies or messaging standards, and how they make use of the FCA’s database of instrument reference data (FIRDS).

Trading venues: The DP covers aspects of the UK MiFIR reporting obligations for trading venues. The FCA seeks trading venues’ views on a range of topics, including whether they would benefit from further guidance on when instrument reference data should be submitted, changes to the frequency and timing of instrument data reporting requirements, and how trading venues currently report negotiated orders.

Proportionate reporting requirements

The FCA asks firms to comment on the areas of the transaction reporting regime that they find most challenging. This could include sourcing data, maintaining records, understanding requirements, or dealing with exceptions and errors.

The DP also invites views on whether the FCA should consider:

Removing the requirement for Systematic Internalisers to submit instrument reference data.
Establishing an opt-in register of firms which are willing to act as a ‘receiving firm’ and submit transaction reports on behalf of ‘transmitting firms’ to help reduce the reporting obligation on smaller market participants.

Deleting RTS 22 ‘indicator’ fields 61-65 in transaction reports, as it sees these fields as either duplicative or redundant. The FCA also seeks views on various other potential changes to transaction report fields to improve the quality of the submitted data.

The FCA notes that market participants are sometimes unclear on which party has the reporting obligation when UK branches of third country investment firms execute trades on UK trading venues. The FCA invites views on the possibility of removing this obligation on UK branches and instead requiring trading venues to report all transactions executed on their systems by third country investment firms.

Enhanced market monitoring

Collective portfolio management investment (CPMI) firms are not subject to transaction reporting requirements for activity that would be reportable if conducted by a MiFID authorised firm. As such, the FCA’s ability to monitor CPMI firms at the transaction level is more limited than for MiFID firms. The DP asks whether it would be beneficial to include such firms within scope of the MiFIR transaction reporting regime for their MiFID activity.

The FCA also seeks views on a number of other possible changes that would enhance the effectiveness of its market monitoring, including:

Requiring investment firms to provide full names and dates of birth for individuals who are identified as the investment and execution decision maker in transaction reports.
Adding new transaction report fields to identify client types (retail or professional), digital token identifiers, transactions executed through direct electronic access (DEA), complex trade prices, and for linking the market side(s) and client side(s) of a transaction.

What do firms need to do?

Firms should begin assessing the potential impacts on their existing transaction reporting systems and processes.

Firms should refocus on the use of technology and data analytics to meet the FCA’s expectations.

Firms should be mindful of wider changes to wholesale market data requirements and obligations and consider ways to mitigate costs of divergent approaches.

The potential changes covered in DP 24/2 range from straightforward to complex to implement. Firms should engage with the FCA through its policy development process and respond to the DP where they have views on the issues covered, or on broader related topics.

Firms should begin assessing the potential impacts that changes to the UK transaction reporting requirements could have on their existing systems and reporting processes. In doing so, firms should note the initiatives highlighted by the FCA to accommodate the use of new technologies and innovations. Firms should consider how they can use technology and data analytics to meet the FCA’s expectations.

Firms should also be mindful that the issues covered in this DP form part of a wider set of changes to the regulatory data landscape. This includes changes to the FCA’s pre- and post-trade transparency requirements for bond and derivatives markets, setting up of the consolidated tape for bonds in 2025, and further expected changes affecting equity markets. Firms should consider the FCA’s steer that future divergence between the UK and EU transaction reporting requirements is likely. This may require firms to make changes to existing processes which reduce alignment between the reporting requirements in the different jurisdictions firms operate in. Firms should consider ways to mitigate the costs associated with divergent approaches.