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How Did MiFID II Get Transaction Reports So Wrong?

Marketing Team


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Like all regulations, MiFID II has its fair share of critics. However, one part of this directive has attracted resounding criticism from the authorities in how it’s been implemented. 

Under Article 16 of MiFID II, firms have to ensure they have records of all services, activities and transactions. This not only includes communications and marketing promotions, but covers the very trades and transactions at the heart of the business. 

It’s fair to say firms have been lacking in this area, with the FCA revealing one in four transaction reports (1,355) it received in 2018 were inaccurate. This is not a problem limited to just the UK either, with ESMA identifying a ‘sizeable deficit in quality, timeliness and completeness’ of MiFID II data submission. So how have things gotten this bad? And who is at fault here – is the regulation too hard to meet or could regulated firms be doing more?

Well, there are exasperating factors on both sides. First, within Article 16 there are significant compliance challenges to overcome. Many regulated firms felt they could rely on their Approved Reporting Mechanisms (ARMs) to shoulder some of the responsibility.

Unfortunately for them, ARMs are only responsible for the actual reporting and not for the content of the report. With many firms having to invest heavily in the front office side of their business, the challenge for more extensive reporting has been an expensive one to implement. 

The actual format of these reports has been difficult for firms to manage too. For instance, to be submitted to the FCA’s Market Data Processor the transaction reports in particular need to be in XML or XBRL format. The system caps the number of lines in the transaction report to 500,000 and if they are even slightly over this length they are wholly rejected. While many firms may be relying on manual processes for their record-keeping, the difficulty is automising this and knowing what to include and what to omit.  

When it comes to the communications aspect of Article 16, MiFID II, the way firms digitally present and promote themselves has come under the microscope. Whenever a newsletter is issued, web banner published, tweet posted or web page refreshed there needs to be a record of this. In essence, firms have had to become increasingly accountable as to what financial instruments they market and how they do it.

For example, the FCA has made it clear what constitutes a financial promotion in their handbook under PERG 8.22 The Internet:

'If a website or part of a website, operated or maintained in the course of business, invites or induces a person to engage in investment activity or to engage in claims management activity, it will be a financial promotion'.

The trouble is, failings in this area of MiFID II present low hanging fruit for the FCA which is rapidly losing patience. The regulator realises it is receiving thousands of inaccurate transaction reports and has already handed out hefty fines of £27.6m and £34.3m for UBS and Goldman Sachs respectively for these very failings. After the latter, FCA Executive Director of Enforcement and Market Oversight Mark Steward said:

It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly. There needs to be a line in the sand.’ 

It is estimated that 40% of financial services firms are at risk of being fined under Article 16 breaches (based on research from TeleWare). Unfortunately, this isn’t a case of the regulation being too hard to meet and regulators keen to make an example of firms, it's simply necessary to reinstate confidence for investors. Firms must become more accountable and transparent in their operations, they must take appropriate action and deploy the necessary solutions and processes.

Rebuilding public trust was never going to be an easy task but we advise firms to see these regulatory requirements as positives - the outcome is aimed to benefit both business and consumer.

Other key areas of concern for non-compliance of Article 16 include:

•  Record-keeping requirements for digital communications - firms are struggling to capture accurate records of website and social media communications.

• Record-keeping requirements of financial promotion approvals - firms are struggling to capture all of their financial promotions and setup the required approval and audit processes behind these.

• The ability to provide legally admissible evidence that a financial promotion was clear, fair and not misleading in the event of a complaint.


When you look at how MiFID II has fundamentally changed other parts of the industry (such as through the unbundling of research) and required some business models to be redesigned, the requirement for record-keeping and submissions on the surface seems quite simple. Unfortunately, as digital channels continue to expand and grow, regulatory demands start to become more complicated and firms struggle to keep up. 

Firms must look to RegTech solutions to help remove the resource burden and ensure compliance isn't left to chance.

At MirrorWeb, we've built a platform that directly answers the need to record digital communications and financial promotions - capturing them in an archive where they can be replayed at any time. Here, your web and social channels are completely searchable, 100% accurate and captured in an ISO-certified format that can be used for legal admissions if the regulator ever comes knocking.  

Regardless of how hard regulation is to meet, firms must endorse what the regulators are enforcing - a more transparent market with clear rights and protections for EU citizens. Our advice for firms is that they should focus on what the outcomes are of the regulatory requirements, this will ensure that the solutions deployed truly answer what the regulator is driving at for now and for the foreseeable future.

Concerned about whether your firm answers the requirements of MiFID II, Article 16? We recently created a comprehensive report on this specific part of MiFID II which you can access below...

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