About a-team Marketing Services
The knowledge platform for the financial technology industry
The knowledge platform for the financial technology industry

A-Team Insight Blogs

Regulators are Cracking Down on Counterparty Identifiers in Line with the MiFID Review

Subscribe to our newsletter

The UK Financial Services Authority’s (FSA) recent fining of German bank Commerzbank for its transaction reporting failures is just one instance of the regulator’s current focus on the data details of a firm’s business. One of the underlying problems in Commerzbank’s case was the incorrect allocation of counterparty codes and the use of proprietary codes for these counterparties, which is exactly why the FSA and other European regulators are so keen for the mandatory inclusion of Bank Identifier Codes (BICs) in these transaction reports, among other data standards.

The need for a more standardised approach to identifying counterparties to a trade and for identifying instruments themselves is all part and parcel of the current review of MiFID going on within Europe. The transmission of this data across the central Transaction Reporting Exchange Mechanism (Trem) in Europe further highlights any failings in firms’ data details, as the miscommunication goes cross border. There is no doubt that the UK has blazed the regulatory trail with regards to implementing MiFID but if even the FSA is spotting serious systems and controls failures with regards to reporting data, what hope does the rest of Europe have?

Under MiFID, both buy and sell side firms are required to report accurate and complete trading data through approved reporting mechanisms (ARMs) by the end of the next business day post-trade. This includes a complete set of accurate reference data, which is seemingly where many firms are falling foul of the FSA. Moreover, firms may be able to outsource this reporting function but they are still held accountable for the reports that are produced at the end of the day and must therefore closely monitor these to ensure they meet the regulator’s standards.

The Committee of European Securities Regulators’ (CESR) MiFID review is looking for more detail from firms about how they are meeting the requirements of the directive, which came into force way back in November 2007. With regards to reference data, the European regulator is therefore looking for feedback on execution data quality from firms, execution venues and vendors; details on firms’ post-trade transparency regimes; and whether counterparty and client identifiers should be mandated for transaction reporting.

The deadline for responses from the industry to the MiFID review is the end of this month (31 May), before the regulator pulls together the requirements into an updated directive. The likely outcome for firms, vendors and trading venues will be the introduction of new data definitions around execution, which will entail costs around the implementation of new standards. If BICs are mandated as counterparty and client identifiers across Europe, then firms will have to alter their systems accordingly; ditto with any changes to instrument codes and standardisation.

Last year, CESR published a consultation paper recommending the adoption a set of identifiers and classifications for OTC derivatives for the purpose of including those instruments in the exchange of transaction reports amongst CESR members. The extension of MiFID to more complex instruments is part of what has been dubbed MiFID mark two by many in the market, but before this can happen, a lot of the issues that firms haven’t tackled as a result of the first instance of MiFID must be ironed out.

Subscribe to our newsletter

Related content

WEBINAR

Upcoming Webinar: Market Abuse: Trends and Issues to Watch Out for in 2023

Date: 2 March 2023 Time: 10:00am ET / 3:00pm London / 4:00pm CET Duration: 50 minutes With the FCA taking a supervisory approach to regulating firms, many regulatory interventions won’t end up in the public domain. What are they looking for and how do you ensure you stay on the right side of their supervision?...

BLOG

SteelEye Raises $21 Million in Series B Led by Ten Coves

Communications and trade surveillance platform SteelEye has raised $21 million in a Series B funding round led by Ten Coves Capital and including existing investors Fidelity International Strategic Ventures, Illuminate Financial, Beacon Equity Partners, and a large family office. The round – which takes SteelEye’s total capital raised to $43 million – will be used to fund...

EVENT

TradingTech Briefing New York

TradingTech Insight Briefing New York will explore how trading firms are innovating and leveraging technology as a differentiator in today’s cloud and digital based environment.

GUIDE

Regulatory Data Handbook 2022/2023 – Tenth Edition

Welcome to the tenth edition of A-Team Group’s Regulatory Data Handbook, a publication that has tracked new regulations, amendments, implementation and data management requirements as regulatory change has impacted global capital markets participants over the past 10 years. This edition of the handbook includes new regulations and highlights some of the major regulatory interventions challenging...