Banking regulation need not break the bank

How much is your reputation worth?

Oliver Bishop

By: Oliver Bishop
Blog

It has now been a few months since go-live for MiFID II and MiFIR and, to borrow David Davis’ Brexit analogy, things have not turned out to be the Mad Max-style dystopia that some were worried about.

Those following the story closely will have seen that the tick size regime had roughly the expected impact on routing of volume (particularly securities traded in Switzerland), and that there have been some bumps in the road with reference to data aggregation across the union. Realistically though, most of this was minor enough to provide only brief distraction from the January plunge in the value of Bitcoin.

However, we should not move on quite yet. In most cases, reports (pre, post and transaction) from investment firms are now flowing, meaning that one of two things is happening:

  1. full compliance
  2. a non-compliance problem that is growing every day

Unfortunately experience, together with the inherent complexity of MiFIR reporting, suggests that many firms will be in the second camp and that the differences between firms will be largely the materiality of errors.

Plenty of problems exist in the market, including for regulators themselves, but the key point is to not overlook potential problems and allow them to grow for years. As anyone previously involved in a back-reporting/replays project to unwind these problems can confirm, the burden (complexity, effort, cost) of unresolved issues multiplies if left unchecked. To what extent can you attest to the accuracy of your reporting today? If you have any doubt, early investigation is fundamental to reducing the pain later.

So, whether your teams have all moved onto new projects, or are already clearing up known post-go-live reporting issues, plan the right time to step back and take these actions:

  1. Carefully review what your governance tools are telling you (such as reconciliations or alerts)
  2. Take some reasonably large data samples and run manual sanity checks, particularly in areas expected to be complex (OTC derivatives, for example)
  3. Specifically review any enrichments your reporting provider may be completing
  4. If necessary, get a second opinion

Finding and fixing problems late not only costs time and money but poses significant reputational risk. Take a breath this year and protect your firm from appearing on charts like this one…