Monitoring the quality of transaction reports received under Article 26 of MiFIR
Press release 23/06
This press release relates to the obligation for credit institutions and investment firms to report transactions in financial instruments as set out in Article 26 of Regulation (EU) No 600/2014 (“MiFIR”). It informs on the number of reporting entities as well as the number of reports received by the CSSF in 2022 and aims more particularly to inform all reporting entities on the quality and completeness campaigns that the CSSF conducted during the year 2022 as well as to announce the priorities for 2023. The last part of the press release includes a list of topics that have already been subject of a specific campaign and for which details are available in previous communications.
In this press release, references to a specific “Field” refer to the fields in Table 2 of Annex I of Commission Delegated Regulation (EU) 2017/590 (“RTS 22”).
Union strategic supervisory priorities
Following the reference made in its 2021 press release on transaction reporting, the CSSF would like to point out that ESMA has chosen to maintain market data quality as one of the two Union Strategic Supervisory Priorities for 2023. The CSSF fully supports this objective.
Entities within the scope of the transaction reporting obligation
In accordance with Article 1(2) of MiFIR, the obligation to report transactions in financial instruments to the CSSF applies to credit institutions and investment firms incorporated under Luxembourg law as well as to branches of third country firms authorised in Luxembourg (together referred to hereunder as “Investment Firms”).
As of 1 January 2023, the CSSF had registered 119 Investment Firms that submit transaction reports to the CSSF either directly or via an approved reporting mechanism (“ARM”). During 2022, 27,372,428 reports (including cancellations and corrections) were submitted by the aforementioned Investment Firms to the CSSF via the system set up to this end.
1. CSSF data quality monitoring performed in 2022
In 2022, the CSSF carried out the standardised quality tests developed together with the other competent authorities and ESMA. In addition to these tests, the CSSF has introduced the Quarterly Analytical Summary which largely builds on the scripts developed for the individual quality tests conducted between 2018 and 2021 and aims to provide Investment Firms with a quarterly overview of transaction reporting data quality.
1.1. Quarterly Analytical Summaries
As announced in the CSSF press release 22/03 in May 2022, the CSSF provided Investment Firms with a first version of its Quarterly Analytical Summary highlighting potential flaws in their transaction reports. In July 2022, October 2022 and January 2023, the CSSF provided the respective Quarterly Analytical Summaries for the quarters that had come to an end. Since July 2022, the analytical summaries cover the respective last two quarters in order to facilitate the monitoring and follow-up of the corrections that Investment Firms shall make.
As previously mentioned, the Quarterly Analytical Summaries are largely based on the quality tests carried out previously. The test results are presented in form of a dashboard including the number of transaction reports flagged per test and per month. In order to facilitate the follow-up by Investment Firms, a list of flagged transaction reports and a detailed description of the tests are attached to this overview.
2. Prospects for 2023
2.1. Quarterly Analytical Summaries
In reference to section 1.1. of this press release, the CSSF will continue to submit the Quarterly Analytical Summary to Investment Firms. The test methodology may evolve over the course of the year: in particular, it is planned to add additional tests during 2023. Potential additional tests which are already at an advanced development stage include:
- consistency between the Field quoting the executing entity and the two Fields mentioning the transmitting entities,
- consistency of the country flag Fields mentioning the branches that were involved in the reported transaction,
- extension to other nationalities for which the CSSF checks in detail the composition of the authorised national identifier for identifying natural persons.
While the analytical summaries aim to give an extensive overview of the overall quality of the reporting transmitted, Investment Firms are expected to thoroughly analyse the data provided in order to identify and fix potential flaws within their reporting tools and to correct erroneous and incomplete transaction reporting without delay.
By shifting the quality monitoring methodology from individual campaigns targeting specific Fields to dashboards gathering the results of multiple campaigns covering nearly all Fields, Investment Firms should be able to resolve several potential issues in one IT development cycle instead of correcting error by error, thus reducing the number of corrective interventions per transaction report in error.
If Investment Firms identify a systematic error on the basis of their analyses and controls of the transaction reporting data, a dedicated issue notification shall be sent to the CSSF. To this end, the CSSF reminds Investment Firms that a duly filled-in CSSF MiFIR Transaction Reporting Issue/Error notification form shall be sent as soon as an issue has been identified, to the following email address: firstname.lastname@example.org.
Subsequently, Investment Firms are requested to send an updated version of their initial error notification as soon as new information in relation to the notified issue becomes available.
2.2. Error messages
The CSSF will more closely follow up on automatic error messages generated by its reporting system upon the processing of the received transaction reports and which are subsequently sent to the submitting entities, with a particular focus on rejected transaction reports for which a corrected version remains outstanding.
In light of the above, the CSSF would like to highlight that in accordance with Article 15(1)(h) of RTS 22, Investment Firms shall have procedures and mechanisms in place for identifying unreported transactions where the relevant transaction reports were rejected by the CSSF and have not successfully been re-submitted. Therefore, a prompt follow-up by the Investment Firms of the received error messages is required in order to comply with the obligation to report complete and accurate details of transactions to the CSSF as soon as possible and no later than the close of the following working day pursuant to Article 26(1) of MiFIR.
2.3. Reconciliation of transaction reports
In accordance with Article 15(3) of RTS 22, Investment Firms shall have arrangements in place to ensure that their transaction reports are complete and accurate. Furthermore, Article 15(3) of RTS 22 stipulates that those arrangements shall include the regular reconciliation of Investment Firms’ front-office trading records against data samples provided to them by their competent authority.
In reference to the above, a sample of Investment Firms will be asked to provide the CSSF with a detailed description of their respective procedure established for reconciling the front-office trading records with the appropriate transaction report data. The CSSF will verify the adequateness of such procedures.
Investment Firms may refer to the CSSF MiFID II/MiFIR – Questions and Answers for further information related to the data extract requests that they can address to the CSSF. In this context, the CSSF draws Investment Firms’ attention to the fact that the CSSF provides such data extracts since 21 May 2019 in XML format. Besides this format, the CSSF can also make this data sample available in XLSX format in order to facilitate the processing of the data.
Apart from the reconciliation of transaction data that might be documented at different levels (e.g. front office, ARM, reports sent to the CSSF), the CSSF is also considering reconciling transaction reports received from different reporting entities pertaining to the same transaction. In this respect, the aim is to identify transaction reports which mention an Investment Firm as buyer or seller but for which no corresponding mirror report can be found. In this context, the first Investment Firms will be contacted during this year. In the medium term, it is planned to automate this check and make the respective results available to the Investment Firms (either by integrating it into the Quarterly Analytical Summary or a separate feed).
2.4. Rigorous enforcement of violations
The CSSF stresses that five years after the entry into application of MiFIR, and considering the continuous efforts undertaken vis-à-vis Investment Firms to improve the quality of transaction reporting, notably through the four-year programme of individual quality and completeness campaigns and the implementation of the Quarterly Analytical Summaries, Investment Firms are expected to be fully compliant with their obligations under Article 26 of MiFIR by now. Therefore, the CSSF will adopt a more rigorous approach to enforcement of violations under Article 26 of MiFIR, being the logical continuation of its continuous data quality efforts over the recent years. The CSSF started with an approach that first focused on systematic corrections to improve the quality of future transaction reports, then strengthened the requirements for back reporting. In 2022, the CSSF imposed for the first time an administrative sanction on an Investment Firm for non-compliance with its transaction reporting obligations and intends to make increased use of its sanctioning powers for non-compliance with Article 26 of MiFIR going forward.
In this regard, the CSSF stresses that a proactive approach by Investment Firms, including notably the timely submission of error notification forms to the CSSF and the swift implementation of remedial actions, will in any case be taken into account by the CSSF when deciding on the nature and severeness of potential enforcement measures to be pronounced in case of non-compliance with the transaction reporting obligations.
3. List of previous campaigns
- Entities in scope
- Completeness of reporting
- Missing LEI codes
- UTC (Coordinated Universal Time)
- Execution of a transaction on a trading venue (Field 36 “Venue”)
- Transmission of an order pursuant to Article 4 of RTS 22
- Field 5 Investment firm
- Late reporting
- Trading capacity (Field 29)
- Partial executions
- Designation to identify natural persons
- Price / Quantity