The Financial Conduct Authority (FCA) has released Market Watch 81, focusing on persistent issues in transaction reporting. While data quality has improved since the introduction of MiFID II, the FCA continues to observe common deficiencies that undermine market integrity. These issues often stem from weaknesses in change management, data governance, and reporting controls.
The FCA has clarified that firms must address these challenges to ensure accurate, complete, and timely transaction reporting. Robust processes are essential for meeting regulatory requirements and reducing risks to the financial system.
Key Observations
The FCA identified several recurring issues in firms’ transaction reporting practices, highlighting areas where improvements are needed.
Change management remains a critical weakness. The FCA found that poorly managed changes, such as system upgrades or staff turnover, frequently lead to reporting errors. Insufficient testing and inadequate documentation of key decisions have left firms vulnerable to data quality issues, particularly following the implementation of MiFID II.
Reporting logic often fails to align with business models. Some firms designed reporting processes without fully understanding the regulatory context or their own operational requirements. This has resulted in systemic inaccuracies, such as incorrect reporting of trading dates and times due to reliance on inconsistent source data.
Data governance frameworks are often insufficient. Firms lacking clear data documentation, such as dictionaries and lineage maps, struggled to maintain control over reporting processes. Poor governance was particularly evident when temporary staff or untrained personnel were tasked with reporting responsibilities, leading to increased errors.
Control frameworks are inadequate for detecting errors. The FCA noted that many firms do not have robust internal controls in place to identify and correct issues in a timely manner. This is especially concerning for firms that rely on manual processes, which are prone to human error and often fail to provide sufficient oversight.
Governance and resourcing challenges hinder effective reporting. Firms with unclear accountability structures or insufficiently skilled personnel have struggled to meet their reporting obligations. These deficiencies often result in delays when errors occur, exacerbating compliance risks.
FCA Expectations
The FCA has outlined clear expectations for firms to address the weaknesses identified in their transaction reporting frameworks.
Change management must be strengthened. Firms should implement robust processes to manage system migrations, organisational changes, and staff turnover without compromising data quality. Thorough testing and documentation are critical for reducing risks.
Reporting processes should reflect business activities accurately. Firms must design their reporting logic with a clear understanding of their operational models and regulatory requirements. This includes aligning data sources to ensure consistency and accuracy.
Data governance frameworks need to be robust. Effective governance involves clear documentation of data flows, oversight mechanisms, and comprehensive training for all staff involved in reporting. This will help firms maintain data integrity and reduce discrepancies.
Controls should be sufficient to identify and correct errors promptly. Firms must establish automated checks and manual reviews to detect reporting issues early. These controls should be properly resourced to ensure they operate effectively.
Governance structures and resources must be fit for purpose. Clear accountability, well-defined policies, and sufficient investment in skilled personnel are essential for maintaining compliance and minimising risks.
By addressing these areas, firms can improve the accuracy and completeness of their transaction reporting, aligning with the FCA’s goal of promoting market integrity.
For detailed guidance, firms should refer to the full text of Market Watch 81.
If your firm requires assistance in improving its transaction reporting systems and controls, please contact us for expert compliance support.
