With Brexit complete, MiFID firms must deal with two important implications: separate FCA reporting and treatment of the special class of instruments.
Separate FCA reporting
There are now two kinds of MiFID investment firms, each with different reporting requirements.
Prior to Brexit, UK and EU entities were both governed by guidelines established by the European Securities and Markets Authority (ESMA). Now, however, investment firms operating in the EU need to report securities to ESMA, while firms operating in the UK will report trades to FCA.
Firms operating in both jurisdictions will need to have independent EU and UK entities, each of which will report to the respective regulator. Separate lists of reportable securities are now maintained by ESMA and FCA on their respective FIRDS to guide this process.
In addition, some managers may need to segregate transactions accordingly through separate ARM/APA. Overreporting can be avoided by comparing transactions with the securities lists provided by each regulator and reporting only relevant securities. For real-time post-trade reporting, most APAs have added a jurisdiction field in FIX formats so the redirection can be handled smoothly.
Most ARMs have established two units: one in London and another in an EU city, most commonly Amsterdam. Trades reported to FCA are being directed to the London entity while those reported to ESMA are being directed to the EU entity.
Treatment of Special Class of Instruments
Interestingly, the focus of the special class of instruments has been energy and natural gas products that fall under the C(6) Section.
Previously, natural gas products produced and traded in the UK were exempt from MiFID reporting if they were OTF-traded and settled physically. After Brexit, these products need to be reported if they are traded on UK markets but not if they are traded on EU OTF markets. Some hedge funds will be affected by the distinction.
IVP Regulatory Reporting (Raptor) is a universal, Brexit-ready tool that can automate MiFID, EMIR, and SFTR requirements. It sources data from your trade system and enriches it with data from a security master and a regulator’s FIRDS system. Post-enrichment, it catches any errors with built-in validation tools and then automatically sends the information to the respective ARM for reporting.
Learn More about the Impact of Brexit on Regulatory Reporting: