On 3 October 2022, the FCA published Market Watch 70.
Market Watch is the FCA’s newsletter on market conduct and transaction reporting issues. In this issue the FCA outlines some of its recent observations on the transaction reporting and instrument reference data regimes.
Key points in this issue of Market Watch include:
- National identifiers. The FCA reminds firms of Market Watch 59 and 62 where it highlighted that 1st priority national identifiers must be used wherever available to identify natural persons in transaction reports. The FCA continues to see firms failing to conduct sufficient due diligence when onboarding clients to obtain these identifiers.
- Principal firms. The FCA makes two observations: (i) when a transaction is executed by an appointed representative (AR) providing the investment service of reception and transmission for a principal firm that is subject to transaction reporting obligations, the principal firm should be identified in applicable fields of its transaction report, such as in the executing entity field. The AR should not be identified; and (ii) principal firms are responsible for ensuring that their transaction reports are complete and accurate, and for implementing an adequate systems and controls framework to identify potential data quality issues, including where caused by an AR.
- Branch reporting. The FCA does not expect firms to determine their reporting obligations based on the geographic location of a trader alone. Other factors should be considered, such as the location(s) of the branch that received the order from the client. The FCA also expects UK branches of third country investment firms to report whether the investment firm is covered by directive 2014/65/EU (Field 5, RTS 22) with ‘TRUE’. This allows the FCA to distinguish the reports they submit from those submitted by trading venues under Article 26(5) of UK MiFIR for transactions executed on their platforms by third country firms, which should contain ‘FALSE’ in this field.
- Other transaction reporting issues. The FCA has identified more firms misusing the ‘INTC’ reporting convention.
- Instrument Reference Data. Where a trading venue or systematic internaliser identifies incomplete or inaccurate instrument reference data in its submissions, the FCA expects to be notified promptly via the submission of an instrument reference data errors and omission notification form. Corrected data should be submitted without delay. Other instrument reference data issues include that some trading venues have submitted data for instruments that are not commodity derivatives with the commodities or emission allowance derivative indicator (Field 4, RTS 23) populated ‘TRUE’. This can cause investment firms to receive a CON-460 transaction reporting validation error for failing to populate the commodity derivative indicator. In these cases, the FCA has identified good practice from investment firms who contact the trading venue on which the transaction was executed to ensure the instrument reference data is accurate. However, responsibility remains with trading venues to submit accurate data and have procedures in place to identify potential shortcomings.