Adapting Testing Approaches for Regulatory Transaction Reporting

May 31, 2012

BJSS white paper helps firms avoid the pitfalls of a changing regulatory landscape 

 With global regulatory reform driving change in the financial markets, trading organisations

must face up to a number of imminent challenges, particularly around transaction reporting.

Firms must act now if they are to avoid the significant fines and reputation damage that

others have suffered for non-compliance. In response to this need, BJSS, an established IT

consultancy in the capital markets, has published a white paper outlining how firms can best

prepare their systems for the new wave of demands.

 

Firms must first understand the full impact that multiple regulatory changes will have on their

transaction reporting. These include the ongoing implementation of MiFID, which introduces a

reporting requirement for ‘Flex’ contracts; the G20 requirement to report OTC derivative

contracts to trade repositories by 2013; the imminent MiFID II reform which is set to extend

regulation across multiple asset classes and introduce additional transaction reporting

obligations; plus the Regulation on Energy Market Integrity and Transparency (REMIT), which

is expected to introduce new reporting requirements for wholesale energy markets in 2013.

 

Mike Bates, managing director at BJSS, explains: “These changes have the potential to

cause major confusion as they overlap with existing reporting regimes. Firms may find they

have to report a single trade to multiple European regulators, such as ESMA and ACER, as

well as to trade repositories in the US and Europe. To address the complexities of generating

transaction reports that meet these regulators’ requirements, firms need to pay close

attention to the systems involved in the testing of transaction reporting.”

 

Details of previous FSA fines for invalid transaction reporting reveal some common failings.

These include incorrect market details, such as reporting the wrong side of a trade or against

the wrong time zone, inadequate business processes, such as not building and testing a

process for managing rejected trades, and inconsistent reference data. A reporting firm was

fined £1.75M by the FSA for failing to keep reference data current following a change in

market identifier codes for Milan and Stockholm exchanges, alongside multiple other

reporting failings.

 

In its white paper, ‘Adapting Testing Approaches for Regulatory Transaction Reporting’, BJSS

outlines several steps firms can take to address their trading and back office infrastructure.

These include the early engagement of testing, which is paramount to effectively identify and

resolve requirement gaps in good time; effective sourcing and integration of reference data,

which is a key requirement that should not be underestimated; independent testing, to ensure

outsourced providers also achieve regulatory obligations; and embedded transaction

reporting domain experts within the delivery team to reduce the risk of common compliance

problems.


Mike Bate adds: “These regulatory changes present a valuable opportunity for IT

departments to learn from the previous mistakes of other firms. While some of the changes

may seem minor in terms of the technical requirements, firms should not ignore the broader

issue of establishing a holistic strategy for testing. Without this, they may be vulnerable to

risks from an unnoticed impact to existing reporting functionality or a third party’s failure to

comply. These can have serious and far-reaching reputational and financial implications.”

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