Approved Reporting Mechanism

Data reporting services providers (DRSPs) play a crucial role in promoting transparency and effective oversight in financial markets, ensuring that investors and national competent authorities (NCAs) have access to accurate and comprehensive trading data. Regulation (EU) No 600/2014 on markets in financial instruments (MiFIR), as amended by Regulation (EU) 2019/2175 (ESAs review), establishes distinct categories of DRSPs:

1. Approved Reporting Mechanisms (ARMs): These entities report transaction details to competent authorities or to ESMA on behalf of investment firms.
2. Approved Publication Arrangements (APAs): These entities publish trade reports on behalf of investment firms.
3. Consolidated Tape Providers (CTPs): These entities collect trade reports from trading venues and APAs, consolidating them into a continuous electronic live data stream that provides price and volume data per financial instrument.

MiFIR, as amended by the ESAs Review, grants ESMA direct responsibilities regarding the authorization and supervision of DRSPs, effective from 1 January 2022, except for certain APAs and ARMs that fall under a derogation.

The transfer of supervisory responsibilities from NCAs to ESMA was motivated by several factors, including the cross-border nature of data, the significant role of DRSPs in ensuring market transparency, and the need to achieve economies of scale and data quality convergence.

Authorization is a formal process in which ESMA assesses applicants’ information against relevant technical standards and MiFIR requirements. ESMA applies a risk-based approach to supervising DRSPs, utilizing desk-based activities, investigations, and on-site inspections to ensure ongoing compliance.

ESMA’s supervision includes monitoring data submitted by DRSPs, analyzing complaints, reviewing notifications of material changes, and analyzing periodic information submitted by DRSPs. ESMA has enforcement powers to address breaches of MiFIR, including fines and registration withdrawals.

Certain APAs and ARMs may be derogated from ESMA supervision based on criteria set by the European Commission, considering factors such as the extent of services provided and the volume of trade reports. ESMA assesses derogation criteria annually.

For information on current Competent Authorities for DRSPs, refer to ESMA Registers. For details on the authorization process, contact the Markets and Data Reporting Department at [email protected].

What is Approved Reporting Mechanism?

The Approved Reporting Mechanism (ARM) service facilitates the reporting of transaction details for traded financial instruments to the competent supervisory authority, as mandated by Article 26(1) of MiFIR. These reports encompass transactions executed in traded instruments or those with underlying instruments traded on a trading venue (TOTV). It’s noteworthy that the trade venue holds no relevance; trades may occur on the market or over the counter.

Benefits of Utilizing an Approved Reporting Mechanism (ARM)

As an authorized ARM service provider, clients can expect a myriad of advantages:

1. Increased Efficiency and Reduced Risk: By providing a single access point, ARM services streamline reporting processes, enhancing operational efficiency while minimizing risk exposure.
2. Access to Dashboard: Clients gain access to a comprehensive dashboard, offering statistical data, manual entry capabilities, and real-time status updates on communications and reporting activities.
3. Accessibility for All Firms: ARM services are available to all firms, regardless of their status as market members or non-members, ensuring inclusivity within the regulatory framework.
4. Multi-Connection to European Competent Authorities: ARM services facilitate multi-connection capabilities with various European Competent Authorities, ensuring seamless communication and compliance with regulatory requirements across jurisdictions.
5. Validation Procedures Supported by ESMA Data: ARM services utilize the latest data released by the European Securities and Markets Authority (ESMA) to support validation procedures, ensuring accuracy and compliance with regulatory standards.
6. Comprehensive Coverage: ARM services cover all instruments under the Markets in Financial Instruments Directive II (MiFID II), providing clients with comprehensive regulatory coverage.
7. Expertise in Financial Legislation: ARM service providers possess expertise in financial legislation and remain adaptable to regulatory changes, offering clients informed guidance and support.
8. High-End Technical Assistance: Clients receive high-quality technical assistance from ARM service providers, ensuring seamless integration and operation of reporting mechanisms.

BME Regulatory Services, as an ARM service provider, offers clients a user-friendly dashboard that provides an overarching view of compliance with transparency and reporting obligations. This integrated platform simplifies the management and supervision of all regulatory compliance aspects, ensuring adherence to regulatory requirements.

Approved Reporting Mechanism Esma

The European Securities and Markets Authority (ESMA), the regulatory body overseeing the EU’s financial markets, has imposed a total fine of EUR 2,197,500 on Scope Ratings GmbH (Scope) for violations of the Credit Rating Agencies Regulation (CRA Regulation). Additionally, ESMA has issued a public notice regarding these breaches.

ESMA’s investigation revealed that Scope failed to meet the requirements outlined in the CRA Regulation concerning the management of conflicts of interest. These deficiencies stemmed from both structural inadequacies and specific violations of the conflict of interest obligations stipulated in the CRA Regulation.

Verena Ross, Chair of ESMA, commented on the matter:

“Scope’s failure to adhere to their obligations in avoiding potential conflicts of interest is concerning. ESMA is dedicated to safeguarding investors and maintaining the stability and orderliness of financial markets. Instances where credit rating agencies neglect to identify, prevent, and manage potential conflicts can disrupt market functioning and pose risks to investors. Through our supervisory efforts, ESMA remains committed to ensuring that credit rating agencies fulfill all their responsibilities, including those related to conflicts of interest.”

The fine imposed by ESMA covers five breaches, specifically addressing:

1. Structural deficiencies in Scope’s policies, procedures, internal controls, and organizational arrangements.
2. Two additional breaches related to Scope’s failure to address a potential conflict of interest involving a specific individual.
3. Failure to disclose the provision of ancillary services to a rated entity in the final rating report.

ESMA concluded that all breaches were a result of negligence on the part of Scope. In determining the fine, ESMA considered both aggravating and mitigating factors outlined in the CRA Regulation.

Approved Reporting Mechanism MiFID and MiFIR

The revised Markets in Financial Instruments Directive (MiFID II) and its accompanying Markets in Financial Instruments Regulation (MiFIR) have ushered in a new era of regulation governing the provision of investment services across various financial instruments, whether traded on regulated venues or over-the-counter (OTC).

Objective:

The overarching objective of the updated Directive and Regulation is to significantly overhaul the European securities market. This is achieved through several key measures, including:

1. Expanded Transparency Provisions: MiFID II/MiFIR enhances transparency requirements across financial markets, ensuring greater visibility and integrity.
2. Strengthened Market Infrastructure: The regulations bolster the stability and integrity of financial market infrastructure, thereby fostering investor confidence.
3. Revised Market Microstructure: MiFID II/MiFIR revises market microstructure elements such as market making, algorithmic trading, and security mechanisms of trading venues and participants to promote market efficiency and resilience.
4. Improved Market Data Quality and Availability: Efforts are made to enhance the quality and accessibility of market data, facilitating informed decision-making by market participants.

However, despite the implementation of MiFID II/MiFIR since 2018, there is growing dissatisfaction with certain aspects. Key concerns include:

1. Fragmentation of Equity Market Structures: The proliferation of registered execution venues in the EU has led to fragmented equity market structures, hindering the establishment of a level playing field.
2. Lack of Off-Venue Data Quality: Quality issues persist in off-venue data, undermining the reliability of market information.
3. Open Access Provisions for Exchange Traded Derivatives: Questions arise regarding the adequacy of open access provisions for exchange-traded derivatives, as mandating interconnectedness in derivatives markets could pose risks to market integrity and innovation, particularly in volatile market conditions.

MiFID II/MiFIR serves as the cornerstone of the EU regulatory framework for the trading landscape. Given the evolving global and EU political and economic landscape, it is imperative to ensure that the regulatory framework remains relevant and effective.

While certain constraints have been addressed through the capital markets recovery package, including the MiFID II “quick fix” in response to the Covid-19 crisis, a broader review of the MiFID II/MiFIR framework is essential to further enhance the stability and efficiency of the European trading landscape.

Fca Approved Reporting Mechanism

Before entities can offer Data Reporting Services (DRS) in the UK, they must undergo authorization or verification by the regulatory authority. Understanding this process is crucial for firms operating in this sector.

An entity providing DRS is known as a Data Reporting Services Provider (DRSP). There are three main types of DRS:

1. Approved Reporting Mechanisms (ARMs): These entities handle the reporting of transaction details to competent authorities on behalf of investment firms.
2. Approved Publication Arrangements (APAs): APAs are responsible for publishing post-trade transparency reports on behalf of investment firms.
3. Consolidated Tape Providers (CTPs): CTPs collect post-trade transparency reports for specific financial instruments from various regulated platforms such as markets, trading facilities, and APAs. They then consolidate this data into a continuous electronic live stream, providing comprehensive price and volume information for each financial instrument.

DRSPs utilize the Market Data Processor (MDP) system to submit market data, access market data files, and ensure compliance with the regulatory reporting obligations outlined in the UK’s MiFID framework.

In May 2022, a letter was issued to all DRSPs in our portfolio, outlining the expectations and standards to be met in order to mitigate risks to consumers, market integrity, and competition resulting from any failure to comply with regulatory requirements.

What is the Difference Between MiFID and MiFIR?

MiFID II and MiFIR, although interconnected and aiming for similar outcomes, differ in their implementation approach. While MiFID sets overarching goals for EU member states to strive for, MiFIR imposes specific rules that all countries must adhere to.

MiFID II functions as a directive, outlining objectives that EU member states are expected to work towards. However, it allows individual countries to devise their own strategies to achieve these objectives. The key components of MiFID II can be categorized into five main areas:

1. Market infrastructure and transparency
2. Transaction reporting
3. Product governance
4. Investor protection
5. Rules governing inducements

On the other hand, MiFIR operates as a binding legislative act that directly applies to all member states. It requires full implementation across all financial services firms within the European Union.

MiFIR is particularly notable for its transparency requirements, which mandate reporting rules for authorized firms. MiFIR Transaction Reporting, for instance, mandates that authorized financial services providers submit all trade data at T+1 intervals to an Approved Reporting Mechanism (ARM).

When Were MIFID II And MIFIR Introduced?

Originally, MiFID was introduced in 2004 and took effect in 2007. However, it underwent significant revisions, leading to the emergence of MiFID II, which commenced on January 3, 2018. This updated version aimed to further standardize regulations for financial services firms operating with EU clients. Compared to its predecessor, MiFID II encompasses a broader scope, making it a pivotal component of European financial legislation. MiFIR, introduced alongside MiFID II, also became effective on January 3, 2018.

Where Do MIFID II And MIFIR Apply?

MiFID II and MIFIR have jurisdiction over all regulated financial services firms engaged in MiFID-related activities within the EU, as well as those offering services across borders. This includes various entities such as data reporting service providers, investment and fund managers, bankers, traders, exchange officials, and any businesses worldwide involved in providing investment services or conducting investment activities within the European Union.