The EU’s Markets in Financial Instruments Directive (MiFID II) was created to make the regulatory framework protecting investors clearer. However, it is still tricky to comply with.
This updated piece of legislation was first enforced in 2018. Since then it has become a headache of many compliance officer. Part of the reason is that MiFID II is so complicated to get understand.
Still, according to a new blog post by MirrorWeb, the RegTech company, the directive’s 16th article is particularly difficult to comply to for a number of reasons. And some of those reasons are not because of what is actually in the law.
The blog kicks off by explaining that Article 16 of MiFID II sets out to ensure that every financial services firm have records of all their services, activities and transactions.
The blog then moves on to state that one in four transaction reports submitted to the UK Financial Conduct Authority (FCA) in 2018 was inaccurate and that things are not much better when it comes to the ones submitted to European Securities and Markets Authority (ESMA).
So why is it so difficult? One reason is that many businesses rely on approved reporting mechanisms, the person authorized under MiFID II to do the actual reporting. However, these ARMs, as they are called, have one big flaw, according to the MirrorWeb blog: they are only responsible of the actual reporting. The financial institution is still responsible of providing the content.
“With many firms having to invest heavily in the front office side of their business, the challenge for more extensive reporting has been an expensive one to implement,” the blog states.
Which leads us to the second reason why it is so hard to comply with MiFID II’s Article 16: the format the reports have to be in. The blog points out that the FCA’s only accepts XML or XBRL documents. Anything else will not be processed.
Moreover, the FCA’s Market Data Processor system caps the number of lines in the transaction report to 500,000.
The blog post also states that many companies have problems keeping up with the requirements stipulating how to accurately keep records of their website and social media communication.
They also find it har to capture all of their financial promotions and setup the required approval and audit processes behind these.
To ensure they are compliant, the blog advises financial services firms to seek out RegTech solutions to help remove the resource burden and ensure compliance isn’t left to chance.
You can read the full blog post here.
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