In the ever-evolving landscape of financial regulation, two prominent players have emerged – MiFIR (Markets in Financial Instruments Regulation) and EMIR (European Market Infrastructure Regulation). Both of these regulatory frameworks play a pivotal role in maintaining the integrity of financial markets, albeit with distinct purposes. While they share certain commonalities, they are driven by different regulatory imperatives. In this article, we will delve into the intricacies of MiFIR transaction reporting and EMIR trade reporting, comparing their key aspects and emphasizing the critical need for data accuracy.
T+1 Reporting Regimes: A Shared Foundation
One undeniable similarity between MiFIR and EMIR is their shared T+1 reporting regime. This means that both regulations require market participants to report their transactions within one working day, offering a near real-time view of market activities. Such prompt reporting is instrumental in the oversight of financial markets and regulatory compliance.
Instrument Coverage: A Venn Diagram of Overlap
Another notable parallel between MiFIR and EMIR is the substantial overlap in the instruments they cover. This convergence is primarily due to the fact that both regulations aim to capture a comprehensive range of financial instruments, ensuring that no significant facet of the market remains unmonitored.
Regulatory Objectives: The Crucial Distinction
Here is where the paths of MiFIR and EMIR diverge. MiFIR transaction reporting primarily serves as a tool to detect and combat market abuse. Market abuse encompasses a wide range of activities, such as insider trading and market manipulation, which can undermine the integrity of financial markets. The key goal of MiFIR is to maintain the cleanliness and fairness of the markets, benefiting all participants.
On the other hand, EMIR trade reporting is fundamentally designed to monitor systemic risk. Systemic risk represents the potential collapse of the entire financial system, which would have catastrophic consequences. Monitoring systemic risk is paramount because it ensures the stability of the financial ecosystem.
Data Accuracy: The Crux of Regulatory Reporting
Accurate and complete transaction reports are the lifeblood of effective regulatory oversight. It is imperative that market participants provide data that is devoid of errors and omissions to assist regulators in their respective missions.
Comparative Analysis: MiFIR vs. EMIR Breaches
To shed light on the quality of reporting under both regimes, it's illuminating to examine the number of errors and omissions reported for MiFIR and EMIR breaches. Data from the UK Financial Conduct Authority (FCA) reveals a noteworthy trend. Since the introduction of the EMIR breach reporting form in Q2 2018, the FCA has received notifications from 384 firms for MiFIR transaction reporting breaches, while only 75 notifications were received for EMIR trade reporting breaches during the same period.
On the surface, this might suggest that firms prioritize EMIR reporting due to its systemic risk implications. However, a deeper dive into data quality checks reveals a different narrative. Initial assessments indicate that EMIR trade reports often exhibit a higher rate of inaccuracies compared to MiFIR reports. This might be attributed to the inherent complexity of EMIR reporting. Nevertheless, what's encouraging is that once these errors are identified and explained, firms demonstrate rapid improvements in their EMIR reporting quality.
A Puzzling Discrepancy
This scenario presents a paradox. Despite the apparent lower quality of EMIR trade reports compared to MiFIR reports, the volume of notifications for MiFIR breaches vastly exceeds that of EMIR breaches. One might wonder why this is the case. It appears that the FCA places a stronger emphasis on MiFIR reporting, continuously reminding the industry to notify them of breaches and rectify errors. In contrast, the same level of proactivity seems to be lacking for EMIR reporting breaches.
The Call for High-Quality EMIR Reporting
The incongruity between the FCA's focus on MiFIR and EMIR reporting raises questions about the G20 commitments related to ensuring high-quality EMIR trade reporting data. As conscientious participants in the financial industry, it is crucial to recognize the importance of accurate and complete reporting under both MiFIR and EMIR.
The Role of Kaizen Reporting
If you are concerned about the quality of your MiFIR transaction reporting data or EMIR trade reporting data, or if you seek confirmation of its accuracy and completeness, we invite you to get in touch with us. At Kaizen, our regulatory experts offer a complementary consultation to address your reporting concerns and ensure that you are upholding the highest standards of regulatory compliance.
In conclusion, MiFIR and EMIR serve as vital pillars in the financial regulatory framework, each with its unique focus and reporting requirements. Understanding the nuances of these regulations and maintaining data accuracy is essential in upholding market integrity and systemic stability. At Kaizen Reporting, we are committed to assisting you in this endeavor.
