Automated Compliance Reporting for New FCA Directive MiFID II
An update to the Markets in Financial Instruments Directive required a customer to have a solution for bespoke reporting. Through a deep understanding of the reporting requirements and the technical ability to integrate systems, we created a solution that ensures the client meets regulatory obligations.
The Business Challenge
Argentex is a company that manages foreign exchange transactions for clients across EMEA. Their traders provide expert insight at market leading rates. As an update to the 2007 Markets in Financial Instruments Directive, MiFID II applies to financial industry players that operate and / or do business with European firms providing investment services, such as investment banks, portfolio managers and brokers. The new directive seeks to increase market stability and confidence, therefore the detail required in transaction reports will increase, including personal details to identify execution and investment decision makers, LEIs (unique legal entity identifiers) and trade details. As a company registered with the UK Financial Conduct Authority (FCA) the client must become compliant with MiFID II.
To achieve compliance with the new regulations the Bloomberg solutions, BTRL and RHUB, were selected. While these required integration, they were the quickest and simplest path to compliance.
Bloomberg Trade Repository (BTRL), approved by the European Securities and Markets Authority (ESMA) as a reporting house for derivatives trades accepts reporting for commodities, credit, FX, equities and interest rate derivatives trades mandated under the European Market Infrastructure Regulation (EMIR). Bloomberg is authorised by the FCA for its Approved Reporting Mechanism (ARM) and also for its own Approved Publication Arrangement (APA).
Bloomberg’s ARM allows companies to enrich their transaction reports with data from Bloomberg or third-party order management systems. BTRL is also integrated with Bloomberg Regulatory Hub (RHUB), a platform that connects to the Bloomberg APA and ARM to help firms comply with their regulatory reporting-related obligations. Under MiFID II, financial companies are required to make public through an APA certain transaction information, and Bloomberg’s APA will allow the publication of required trade details when MiFID II goes live.
Synetec’s solution for the compliance regulations consists of specific implementations for each type of report required by the NCAs.
Results and Benefits
The EMIR implementation involves sending of the trade and company details using XML files with specific fields (PGP encrypted) using SFTP connectivity. The report file is uploaded into the Bloomberg’s BTRL, processed and the results of the processing are available within the Compliance module of the client’s order management and trade execution system for further amending (in case it is necessary).
The ARM implementation also involves sending of the trade details using files and SFTP connectivity, in CSV file format with specific header and content. The report file is uploaded into the Bloomberg’s RHUB, processed and the results of the processing are available through the Bloomberg terminal. The users can see the successfully submitted trades, the trades that need further modifications, and for these trades the amendments can be made using the client’s system and will automatically be resubmitted.
The APA implementation involves sending the post-trade details for a trade and counterparty as a message, using the Financial Information eXchange (FIX) Protocol. The FIX Protocol has been chosen as it is the global messaging standard across the financial industry for pre-trade, trade and post trade communication. The required fields are sent from the client’s system to Bloomberg and after processing the trade is published to Bloomberg’s APA website. In case of any necessary amendments the client has the ability to perform these amendments from within their bespoke system.
Through a deep understanding of the MiFID II reporting requirements and the technical ability to integrate the systems quickly, Synetec’s team was able to provide a bespoke solution that ensured the client met their regulatory obligations in a very short space of time.