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UK FSA Reiterates its Commitment to Move from FRN IDs to the BIC for Transaction Reporting by End 2011

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In its latest Market Watch newsletter the UK Financial Services Authority (FSA) reiterates its intention to move from its proprietary FSA Reference Numbers (FRNs) to Swift’s Bank Identifier Codes (BICs) for entity identification purposes within transaction reports, as required under MiFID. In keeping with its discussions with the industry on the subject over the last six months or so, the intention is to bring the UK into line with the rest of Europe by the end of this year, in accordance with the cross border requirements under the incoming second version of MiFID.

Under current regulation, all MiFID investment firms need to endeavour to obtain a BIC to allow for the tracking of data cross border in the European Economic Area. After obtaining a BIC, firms must then provide this data to the FSA’s Transaction Monitoring Unit (TMU). However, in order to allow the regulator to track client and counterparty data for market abuse detection purposes, firms must also provide one of three identifiers for these parties to the FSA: the BIC, if one is available, is the preferred option; but firms can also request an FRN code from the regulator; or use their own proprietary identifiers.

The intention now is to remove the FRN option and to compel firms to report using BIC codes in the required reporting firm identification fields. To this end, the FSA notes: “We will be working with the industry to set a date when we expect firms to make this mandatory change to their systems; this should be towards the end of this year. We intend to consult on this change during 2011 as part of our quarterly consultation process.”

The regulator also indicates in the newsletter that the implementation of Alternative Instrument Identifier (AII) reporting, which has faced a number of delays, will require additional counterparty and client field validations. “Our current validation checks whether the counterparty 1 field is populated for principal trades, whether counterparty 2 is populated for agency trades and whether both the counterparty 1 and 2 are populated for principal and agency cross trades. With the additional validation, our system will not accept principal transactions where the firm has populated the counterparty 2/client field.” More data checking is on its way.

Moreover, the FSA also notes that a “significant number” of OTC derivatives transaction reports it receives are below par with regards to data checking practices. It indicates that in these reports firms have populated the instrument type field with X (other), F (future) or O (option) and have not provided the underlying instrument ISIN. It warns: “It is essential that firms supply the underlying ISIN in the transaction report, so we are able to effectively monitor the market for abuse. Therefore we are introducing an additional validation so that when instrument types X, F and O are selected, the underlying instrument ISIN must be provided. This is in line with the current validation procedure when selecting instrument types A (equity) or B (bond).”

When Dario Crispini, manager of the FSA’s TRU, indicated that the regulator is planning to tighten scrutiny of data quality, he certainly wasn’t joking…

This commitment to the BIC also comes at an interesting juncture, given that there is talk of a new legal entity standard on the cards for the global regulatory community. Let’s hope that, should the new standard come into being, a more joined up approach to these developments is adopted by national regulators.

See the full FSA newsletter here.

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