Navigating financial transparency: Changes to transaction reporting on the horizon

Key Takeaways

• Financial services regulation changes are proposed to establish simpler and clearer rules for transaction reporting in the EU and the UK.
• In both jurisdictions, regulators rely on transaction reports as an important part of their work to monitor for and prevent market abuse.
• The assessment of cost-benefit is an increasingly important aspect of regulatory change.

What market problems are the regulators trying to solve?

A discussion paper on improving the UK’s transaction reporting regime was published in November 2024. Open for comments until mid-February 2025, this paper set out to form the regulator’s consultative position on the development of a new transaction reporting regime. The stated aims were to remove unnecessary burdens for firms while maintaining the high regulatory standards of UK markets. Ultimately, the Financial Conduct Authority (FCA) supports an efficient transaction reporting regime, tailored to the UK, that keeps costs down for businesses and makes capital markets more attractive.

Comparing the UK to other jurisdictions, the EU regulator is also looking at transaction reporting. A hefty consultation has recently closed on their proposed detail changes to transaction data reporting (RTS 22) in Europe. These changes emerged from the March 2024 EU MiFID II Review. Following this consultation, the final draft RTS 22 in Europe is due from the European Standards and Markets Authority (ESMA) by the end of Q3-2025. There are notable differences in the EU proposals compared to the UK discussion points. We will have to wait and see where the UK lands after authoring their own consultation later this year and, ultimately, how the rule changes and timelines for implementation will align.

While proposals consulted on in Europe and discussions opened in the UK include changes such as no longer needing to report tag XYZ or adding new data items, how this translates into cost savings is not obvious. Are these savings for the regulators, or for reporting firms? A full cost-benefit analysis will help the industry to understand how and where we will see savings and a more attractive market.

This evolving regulatory landscape is of great interest to the UK should the government wish to fulfill the 2021 then-Chancellor’s vision for financial services to be an open and global financial center; at the forefront of technology and innovation; a world-leader in green finance; and a competitive marketplace promoting effective use of capital.

What are the proposed UK changes?

UK transaction reports are reports of executed transactions that must be made to the FCA under Markets in Financial Instruments Regulation (MiFID/MiFIR). The FCA relies on transaction reports as an important part of its work to monitor for and prevent market abuse. The existing UK regime works well. Nevertheless, the FCA is looking to make further improvements for the future as part of the Wholesale Market Review.

The discussion paper mentioned earlier will be followed by an FCA consultation paper, expected later in 2025.

Headline topics in the discussion paper focus on:

• Addressing overlaps in reporting requirements, or removing redundancies under parts of EU retained legislation. For example, the European Markets Infrastructure Regulation (EMIR) versus MiFIR.
• Financial instrument identifiers, specifically the requirement to use ISINs to identify over-the-counter (OTC) derivatives for transparency purposes.

Looking more closely at the UK discussion points, the paper explores potential options for evolving transaction reporting and instrument reference data requirements. It’s designed to stimulate discussion around data quality and the usefulness of reports for market monitoring purposes. The overall transaction reporting regime is explored, along with the increasingly important aspect of assessing the cost-benefit of making changes. Potential changes include adding and removing data fields for transaction reports as detailed in UK RTS 22.

The potential/desired impact of the proposed changes on the industry is to remove burdens and reduce reporting costs for firms. The aims are laudable. However, the implementation of any change requires effort.

During post-Brexit consultations in 2022, the UK government asked for views on possible duplicative and overlapping reporting requirements across the different regulatory frameworks. Participants at the time provided high-level comments relating to trade and transaction reporting. Some strongly opposed any action to mitigate these overlaps, as implementing the existing reporting systems has represented a significant cost to the industry. The memories of pre-2018 MiFID II are still fresh. These include the industry-wide resource-intensive regulatory projects required to agree on interpretation; create standards and best practices; and specify, develop, and test the required order and trade workflows end to end – all in time for the regulator’s pre-determined application date.

Thankfully, the FCA is not seeking change for the sake of change, but instead appreciates that firms invested heavily to prepare for the 2018 MiFID II transaction reporting regime. The FCA now sees the opportunity to streamline requirements and strengthen the UK’s position in global wholesale markets.

And then there is the question of EU divergence

The benefits of the UK being more closely aligned with international standards and other regulatory reporting regimes, including the EU MiFID transaction reporting regime, are well recognized. However, there are notable differences between the EU consultation proposals in the context of the initial discussion points from the FCA. It may be that the UK does not want to go down the same path as ESMA.

Also, alignment of the timelines for transaction reporting changes between the two jurisdictions is not anticipated. While the UK is expected to consult on reporting changes in 2025, the EU is pushing ahead, scheduled to publish the final draft text for RTS 22 in Q3-2025. Coordinating changes to one planned date could be more efficient for pan-European trading firms, but only where the overall lead time for delivery is practical and balanced for the scale of the task. On the other hand, having a sufficiently long gap between EU and UK implementations could be a workable approach. The devil will be in the detail.

There are industry concerns around some of the EU proposals

The UK is in the discussion stage; the regulator is listening and asking questions. At this juncture, there may be less concern about potential changes. Once the consultation kicks off, there will be more clarity around the FCA’s position. From the many responses to the ESMA consultation in the EU, it is clear that there are concerns around some of the proposals, the lack of cost-benefit analysis, and potential inconsistency between ESMA’s legal mandate in level 1 and the CP.

For example, The Association for Financial Markets in Europe (AFME) commented that “members are concerned about the challenges for investment firms that will have to adjust their reporting processes and technology to accommodate those changes. While ESMA has not conducted a cost-benefit analysis, and the level of costs will vary across firms, we expect costs to be considerably high, with no or little commensurate benefit.” AFME also stated that they “find it hard to gauge why ESMA has requested some of this additional data, particularly non-EEA TVTIC, off-venue TIC, entity subject to reporting obligation, chain identifier, and client categorization field.”

Conclusion

The final ESMA RTS 22 text could result in significant changes to the EU’s financial services regulation, especially to its transaction reporting regime. The UK is at an earlier stage in the process, with good engagement between the FCA and the markets. Time will tell if the outcome will be a balanced, cost-effective beneficial proposal, rather than a complex and unnecessary heavy lift.