MiFID II: The Data Challenges

By Olivier Kenji Mathurin

Last week I attended the Thomson Reuters Financial Regulatory Summit in London (April 25, 2017), where the primary focus this year was on preparing for MiFID II. With over 400 attendees from financial institutions, the event was a great opportunity for sharing best practices on how to tackle this complex regulation.

Scheduled to come into force on January 3, 2018 – the MiFID II challenge is tough and firms are under huge pressure to get moving. This sense of pressure was certainly evident at the Thomson Reuters event, with 64% of poll respondents saying they felt “nervous” about meeting MiFID II requirements.

So what can firms do to ensure they meet this fast-approaching deadline? In this short article, I offer a summary of the MiFID II data management requirements and resulting top three challenges, as well as a proposed strategy for achieving compliance.

Understanding the MiFID II data management requirements

The data requirements of MiFID II are significant and challenging:

  • Unlike its predecessor, MiFID II extends from equities to almost all asset classes – in particular including OTC derivatives.
  • MiFID II requirements also expand across the entire investment lifecycle, from research to pre-trade, trade and post-trade.
  • MiFID II requires firms to collect more data points than previously, with an increase from 24 to 65 fields required for transactional reporting. The data points required extend to order and transaction data, and the supporting reference data.
  • MiFID II also enforces the use of global identifiers, such as LEI for counterparties and ISINs to identify OTC derivatives.

To be ready for the January deadline, firms need to act now to address these data requirements and move swiftly to identify the data sets they need. Understanding what’s needed should be a top priority, as even the simplest concept – such as pre-trade price transparency or post-trade reporting– can have complex repercussions for a firm’s data-collection and reporting obligations.

What are the Top 3 Data focus areas?

MiFID II will significantly impact a firm’s data operations. With thousands of transactions to report on a daily basis, financial institutions must establish a regimented production of these reports, which must include the cross-referencing of data, and the use of LEIs and ISINs mapped with existing internal systems and identifiers.

1. Sourcing new data requirements

MiFID II lays out a specific set of reference data required for compliance. With the mandated use of LEI for counterparty and issuer IDs, as well as of the ISIN for OTC derivatives, sourcing these particular fields remains an open point today.

2. Accuracy and timeliness

LEI, ISINs, instrument classifications or instrument flags are key reference data fields that will impact how any given security is handled under MiFID II. So having accurate values is critical.

Reconciliation controls need to be set up to ensure all this data remains accurate.

3. Consistency of MiFID Reference Data

Non-EU-based branches of EU firms will also have to report their transactions. The same goes for US or other non-EU-based firms who want to win client mandates from EU firms. ESMA will be paying close attention to the consistency of the data reported, so it is important that the reference data used for reporting purposes is consistent across all business units.

Data consistency is key to fulfilling regulatory obligations. It will also prove essential for remaining competitive under MiFID II.

Best Practices from the Industry

At AIM Software, we propose the following best practices for achieving MiFID II compliance:

Leverage Data Vendors

While ESMA’s Financial Instruments Reference Data System (FIRDS) has yet to go into production, it is expected that data vendors will use this system to source MiFID II data relevant to their feeds.

AIM Software has established partnerships with all the major data vendors – including Thomson Reuters, ICE Data Services, SIX Financial Information and WM DatenServices. Through productized connectors with leading data vendors, AIM Software enables clients to automate the sourcing, management and distribution of MiFID II reference data and content.

Take a Strategic Approach to Data Management and Tackling Regulation

MiFID II should not be approached in isolation from the raft of other European regulations in play. There is significant alignment between MiFID II and Dodd Frank, EMIR, FRTB and other transaction reporting regulations. The workflows of the front-, middle- and back-office are blurring together and changing the way firms operate.

Many firms we’re working with are using MiFID II as a trigger to take a more strategic approach to data management and create new capabilities. The burden of compliance has significantly lessoned within firms that are able to address MiFID II data requirements holistically, within a platform that provides control, flexibility and consistency.

Winners are firms who treat transparency requirements holistically, taking a strategic approach to data management that allows them to meet regulatory requirements and, at the same time, increase their business agility.

Find out more about GAIN for MiFID II

Through productized connectors with leading data vendors, AIM Software enables firms to automate the sourcing, management and distribution or MiFID II reference data and content across the entire organization. It also acts as a platform of reference data that can be reused for further usages – regulatory requirements, but also risks analytics, performance, operations, investment decisions etc.

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