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Brexit and reporting rules set to dominate 2017

10 Jan 2017

Brexit and reporting rules set to dominate 2017

By Rory McLaren, SVP of Regulatory Services, Deutsche Börse Market Data + Services

The past twelve months have been characterised by uncertainty and surprise for the Financial Services industry in Europe, with Britain’s decision to exit the European Union signalling an indefinite period of volatility. The decision also poses a number of questions regarding new market regulation deadlines approaching; for trading firms, the most pertinent being MiFID II. Investment firms will now be spending 2017 readying themselves for new rules to come into action in January 2018 as well as planning for the landscape post-Brexit.

When it comes to transaction reporting, the FCA has taken a relatively robust approach – in a statement following the referendum result the regulator outlined that despite Brexit, it will be ‘business as usual’:

"Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament.

Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect."

Firms should continue in their efforts to become compliant as it is expected that both existing MiFiR as well as the future MiFID II rules will be adopted by the FCA. Maintaining consistency across regulation for the UK and Europe will help London keep its role as the leading financial hub as well as aiding the prevention of market abuse.

This means that firms will need to use 2017 to ensure that they are compliant with all new reporting requirements. Previous delays to implementation and now the uncertainty of Brexit should not become a distraction or used to justify a decrease in resources committed to this process. The complexity of the new reporting standards are much higher than the existing regime – they have been extended significantly in terms of the scope of reportable instruments, and whilst the number of data fields has increased from 23 to 65, the overall information density has increased more significantly.

For this reason, the next twelve months looks to be hugely testing for many firms; most of the buy-side will be unwilling to delegate transaction reporting duties fully to brokers if it means handing over their confidential data. A Deutsche Börse survey from earlier this year found that around 70% of buy-side firms will report directly to an Approved Reporting Mechanism(ARM) under their Mifid II obligations and a further 8% of participants said they would report to the national competent authorities themselves. Only 22% will delegate reporting to a counterparty that uses an ARM.

Consequently, defining the appropriate operating model will be imperative for most firms across the next twelve months. The main issue is the scalability of systems to capture the continuously developing regulation – a holistic approach to reporting will put firms in the best position to address future regulation, like SFTR. Whilst overcoming the complexity of the technical barriers presented could be a significant obstacle, we also expect to see the newfound data be generated from the reporting requirements to present a number of benefits for firms. 2016 may have been a year of uncertainty, but this data has the potential to make 2017 the year of opportunity.

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