Accurate transaction reporting is crucial for ensuring market transparency and regulatory compliance. The European Market Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Regulation (MiFIR) have established stringent reporting standards for financial institutions to abide by. However, firms often encounter challenges that lead to reporting errors, which can result in more work, operational inefficiencies, and even regulatory penalties if not managed properly.
In this blog, we explore the five most common reasons that cause firms to encounter errors in their transaction reporting under EMIR and MiFIR, and how eflow can help you to avoid them.
1. Data inconsistency and quality issues
One of the primary sources of errors in transaction reporting is data inconsistency or poor data quality. Firms often rely on multiple internal systems to manage their transactions, each storing and processing data differently. When reporting under EMIR and MiFIR, firms must pull data from these diverse sources, which increases the risk of inconsistencies, such as:
- Mismatched fields (e.g. trade identifiers, counterparties)
- Incorrect formatting
- Missing or incomplete data points
The sheer volume of data being processed and reported adds to this complexity. Even a small deviation in data format or missing information can lead to errors within reports, causing regulators to flag transactions for further review.
In addition, incomplete or incorrect submissions in transaction reporting can lead to significant compliance issues, as inaccurate data may result in regulatory breaches or penalties. These errors often require firms to engage in back reporting, where they must correct and resubmit historical data, which is both time consuming and resource intensive.
One solution is to use a system that automatically organises and processes the data. eflow’s TZTR Transaction Reporting system consolidates the 203 data fields required by EMIR and the 65 fields required by MiFIR, enriches the data with market information, and validates it to ensure compliance and accuracy.
Any errors or inconsistencies are flagged using an intuitive error-handling tool that highlights the specific field, allowing for direct edits. This saves you from the hassle of searching through countless lines of a spreadsheet to pinpoint the mistake.
2. Inadequate reconciliation processes
Reconciliation involves verifying that data submitted to the regulator is accurate and matches internal records and the counterparties’ data. Inadequate reconciliation processes are a major source of errors, as discrepancies can arise between trade records, counterparty reports and trade repository data.
Since EMIR and MiFIR require firms to report not just their transactions but also confirm that both sides of a trade (i.e. both the buyer and seller) report the same data, any unmatched data can lead to errors. Without a robust reconciliation system, firms are likely to submit inaccurate or incomplete information, creating issues that are only discovered later during regulatory audits.
With integrated three-way data reconciliation, TZTR takes care of this for you. Once the system ingests a file, the reconciliation process quickly identifies and matches records, all in just a matter of seconds, clearly identifying any errors.
3. Manual processes and lack of automation
While financial transaction reporting is detailed and complex, many firms still rely on manual processes for data entry, reconciliation, and submission. These time consuming processes are prone to human error which can lead to mistyped fields, misreported figures or even the omission of key data.
In contrast, automation ensures that data is consistently captured, formatted, and submitted in accordance with regulatory standards. Without such tools there are often discrepancies in reporting, particularly for firms that handle high volumes of transactions.
Investing in automated reporting solutions, such as TZTR, helps reduce human error, enables real-time data validation, and streamlines the reporting process to ensure compliance with EMIR and MiFIR requirements.
4. Lack of audit trails
A lack of an audit trail can make it challenging for firms to demonstrate compliance during a regulatory review. Without a clear record of changes, actions, and approvals, it becomes difficult to demonstrate how data was processed and reported. In the event of an audit, firms may struggle to provide evidence that proper procedures were followed, or explain why a change was made, potentially leading to penalties or further scrutiny from regulators.
An automated solution with a robust audit trail ensures full transparency, offering a clear and verifiable history of all reporting activities. For instance, eflow’s system tracks all user actions, includes fields for compliance teams to document the reasoning behind changes, and timestamps each entry. It also incorporates embedded approval workflows, ensuring that certain actions must be approved by senior team members before they are implemented. This not only enhances accountability, but provides a clear historical overview of system interaction, further simplifying the process of demonstrating compliance when under regulatory scrutiny.
5. Loss of control through delegated reporting
Delegated reporting can present significant challenges for firms, as they effectively hand over the responsibility of reporting to a third party, while still being held fully accountable for any errors or non-compliance. This loss of control can be risky because firms no longer have direct oversight of the data being submitted to regulators. As a result, they are unable to verify the accuracy and completeness of the information in real-time.
A solution like eflow’s TZTR offers a much more effective approach to transaction reporting compared to delegated reporting. While it significantly reduces the heavy administrative workload typically associated with managing and submitting regulatory reports, it doesn’t sacrifice control. Firms maintain complete ownership of their data, which is critical for ensuring accuracy and meeting regulatory requirements.
Bonus - Building an in-house solution
Although not directly related to errors within transaction reporting, building an in-house solution can create challenges for firms’ transaction reporting. It might seem like a cost-effective solution at first, but it often drains time and resources that could be better spent on core business activity.
While firms may have the technical capability to build their own system, many underestimate the complexity and the ongoing effort required to maintain it. The project often ends up being more expensive than anticipated, with unforeseen challenges leading to delays and errors.
Additionally, regulatory changes require constant updates which can put firms back to square one. Without the industry knowledge and expertise that specialised vendors provide, staying compliant becomes even more difficult. Many firms that attempt this end up turning to vendors later, having already invested heavily in a solution that didn’t meet their needs.
In conclusion
In conclusion, accurate transaction reporting is essential for firms to maintain regulatory compliance under EMIR and MiFIR, but the challenges they face often lead to costly errors, fines, and operational inefficiencies. Common issues such as data inconsistency, inadequate reconciliation, manual processes, and incorrect submissions can be mitigated by using an automated solution like eflow’s TZTR.
With TZTR, firms gain control over their reporting process without the burden of manual tasks, ensuring data quality, transparency, and compliance. Unlike building in-house solutions, which can be costly and difficult to maintain, TZTR offers a robust, scalable approach that evolves with changing regulations, giving firms peace of mind and allowing them to focus on their core business.
If you’d like to find out more about how TZTR could work for your firm’s transaction reporting, get in touch to book a demo with one of our experts.
