Mon, Sep 6, 2021

MiFID II Transaction Reporting Services Case Studies

Kroll is a leading advisor in providing practical and proportionate MiFID II/MiFIR transaction reporting solutions for the financial services industry. Our team of former regulators and industry practitioners have successfully delivered over 80 transaction reporting assignments in recent years to help clients build, develop and future-proof their transaction reporting arrangements. Our clients include, but are not limited to, investment banks, brokers, asset managers, trading venues and Approved Reporting Mechanisms (ARMs). 

MiFID II Transaction Reporting Review of a UK Branch of a Large European Investment Bank

The Markets in Financial Instruments (MiFID II) Directive places considerable regulatory requirements on financial institutions trading in European markets. When the UK’s FCA instructed the UK business of a European investment bank with reviewing transaction reporting arrangements under MiFID II across multiple markets, Kroll’s team of experts was engaged to deliver the work.

Kroll was selected for several reasons: our deep understanding of MIFID II transaction reporting regulatory expectations and best practices in banking environments; prior experience delivering similar reviews; and our ability to interact effectively and efficiently with both the FCA’s Transaction Monitoring Unit and bank personnel.

Kroll’s team: 

  • Interviewed desk heads, second line staff and senior managers to assess the products traded across the bank
  • Mapped each trading scenario to regulatory requirements and identified breaches 
  • Established a transaction reporting steering group to monitor the review’s progress 
  • Trained front and back office staff on various aspects of transaction reporting to help mitigate against future issues 
  • Transferred knowledge to the bank’s risk function and central compliance function

Project outcomes

As a result of Kroll’s work:

  • The bank was able to submit a comprehensive report on the review findings to the FCA, clearly setting our remediation tasks and demonstrating that it was fully committed to control its transaction reporting obligations
  • No further action was taken by the regulator against the bank following the report
  • The bank now operates a robust transaction reporting framework which is compliant with MiFID II requirements
Improving Transaction Reporting for the London Branch of a Global Investment Bank

Failing to report and incorrectly reporting transactions is a key area of focus for the Financial Conduct Authority (FCA). The FCA queried a repeated anomaly in the MiFID transaction reports submitted by the London branch of a top tier global investment bank. The bank’s internal investigations confirmed material misreporting errors on transaction reports amounting to approximately 62 million transactions. The FCA imposed a 90-day deadline for the bank to improve processes and ensure compliance.

Kroll was engaged by the bank to provide assurance for the specific attestation required by the FCA.  Specifically, this involved conducting an independent, detailed review of the misreported field in the bank’s transaction reporting output and related systems, controls, policies and procedures. The work was split over two phases. 

In phase one, Kroll developed targeted questionnaires to gain a detailed understanding of the business before creating comprehensive transaction reporting control matrices. The output from this phase was an extensive testing sample of over 1,000 trading scenarios. Issues identified in the testing were escalated immediately for discussion and prompt remediation by the bank. Kroll produced a detailed report on our findings and made over 50 recommendations. This was shared with the FCA so the regulator was apprised of the situation and improvements made by the bank.

In phase two, Kroll assessed the bank’s transaction reporting control framework, processes and governance. We also delivered a peer group gap analysis to allow the bank to benchmark its arrangements against competitors. This bank used the insights to implement new best practices. Again, we produced a report on our findings with recommendations, which were provided to the FCA, supporting a positive working relationship between our client and regulator.

Project Outcomes

As a result of Kroll’s work:

  • The bank was able to deliver to the FCA detailed reports with Kroll’s findings and recommendations 
  • The bank’s senior executives were able to confidently sign the FCA’s attestation letter 
  • The bank is now compliant with the FCA’s transaction reporting obligations

The client’s project leader provided the following feedback: 
“…. I’d like to thank you and your team for the hard work your firm has done to enable the executive to sign an attestation in relation to the buy/sell indicators on the transaction reporting systems. We recognize the work was comprehensively designed and executed to a high standard within a very aggressive time scale.  We are particularly grateful to the team for the extended length of time they spent each day on the task and the patience and professionalism they expressed to all our staff throughout the process. We know our work isn’t finished yet, as the recommendations you’ve made are considered and implemented as appropriate; but wanted to take this opportunity to express our thanks for the support and assistance you’ve provided to us so far.”

Transaction Reporting Review of Multi-Jurisdictional Inter Dealer-Broker 

When the Financial Conduct Authority (FCA) contacted a complex and multi-jurisdictional inter-dealer broker firm in relation to MiFID II transaction reporting irregularities, Kroll’s team was engaged to identify and assess the reporting issues before delivering a plan to improve overall compliance. 
The Kroll team audited each product traded and every trading desk before developing scenarios to capture each possible permutation. Kroll mapped each trading scenario to the requirements of the regulator and performed a front to back accuracy review to identify breaches. 
Kroll’s experts were then able to prepare an appropriate suite of training and process improvements to tackle any irregularities. Over a six-month period, Kroll assessed current levels of knowledge across the firm and assisted with upskilling the relevant staff. 
The Kroll team worked collaboratively with the client, creating a project steering group, which met weekly. The firm now has a clear process to map MiFID II reporting issues and the relevant training and structures to prevent future issues.
Project Outcomes
As a result of Kroll’s work:

  • The firm was able to demonstrate to the FCA that it was fully committed to remediate findings and errors and improve its transaction reporting framework 
  • As a result of Kroll’s work, no further action was taken by the regulator
Remediation Post-Section 166 Review for a Global Investment Bank 

The FCA requires accurate and complete transaction reporting data from firms to help detect cases of market abuse and manipulation. When the FCA uncovered numerous transaction reporting breaches at a major international investment bank, it required the bank to commission a Skilled Person Review (S166). This review identified several findings and recommendations for the bank to improve its transaction reporting framework. 

Kroll was engaged by the bank to assist with the remediation project to address the Skilled Person’s recommendations. To represent such a complex multi-jurisdictional organization split into several entities, Kroll’s team was comprised of transaction reporting specialists with sector expertise and international experience. The remediation project’s objective was to fix and back report millions of transactions across multiple trade capture systems and instrument types. 

Kroll was subsequently engaged by the bank to perform a further deep dive review of its transaction reporting. We interviewed a range of desk heads, product specialists and IT system owners to build a clear understanding of the trading processes and flows. Kroll then analyzed large sets of the bank’s data and reviewed its controls and processes, which identified additional errors from the original S166 review. 

The Kroll team helped to remediate those errors and mitigate future risks by improving processes at the bank. Kroll also developed a comprehensive online training module, supported the set-up of a regulatory reporting team and drafted policies and procedures to complement the enhanced reporting framework.

Project Outcomes

As a result of Kroll’s work:

  • The bank was able to demonstrate to the FCA that it was fully committed to remediate findings and errors 
  • The bank improved its transaction reporting framework and no further action was taken by the regulator
  • The new enhanced reporting framework, which included a state-of-the-art transaction reporting hub and an online employee training module, reduced future compliance risk

Financial Services Compliance and Regulation

End-to-end governance, advisory and monitorship solutions to detect, mitigate, drive efficiencies and remediate operational, legal, compliance and regulatory risk.

Regulatory Advisory and Assurance Services

Within our Regulatory Advisory and Assurance Services, we assist financial services firms in a range of engagements across our suite of subject matter expertise.