The run up to the second Markets in Financial Instruments Directive (Mifid II), which came into force on January 3 this year, posed challenges for all involved. Market participants gawped at the new compliance requirements. The European Securities and Markets Authority (Esma) – the body assigned the task of penning the directive – rushed well into the eleventh hour to create the largest set of financial rules to shape the continent’s markets. For national competent authorities (NCAs) attempting to interpret and implement those rules for their own unique markets, a tide of data awaited.
Nearly a year on, and the UK’s NCA, the Financial Conduct Authority (FCA) has handled well over six billion transactions, through a market data processor (MDP) that receives trade data from 23 entities comprising of the seven registered ARMs (Approved Reporting Mechanisms), ten trading venues and six investment firms which represent approximately 3,150 executing firms. Given the size of the project, problems were anticipated – and on January 9, Esma released a statement to say that the data it had received from across the continent was insufficient for a “meaningful and comprehensive calculation” of the data. Since then, however, data has been published – and it may well be useable.
For the UK’s FCA, however, minor “glitches” reported in January have been ironed out, and systems are working in line with requirements. That’s according to Craig Wilson, UK managing director, financial services, at Sopra Steria – the firm that provides application maintenance services across all the major systems at the FCA, including the cloud-based Mifid II MDP application.
In the past, regulators have been considered slow to embrace technological developments – either due to lack of funding or lack of interest. But given the size of the Mifid II project, perhaps that was not an option. Sopra Steria certainly has its work cut out for it.
“On a day to day basis we have people onshore and in India who manage the processes and the systems. It’s an innovative solution as far as it’s a cloud-based platform which allows the system to validate and track the 31 million transactions a day that come through, reaching out to alternative data sources as required from the individual transactions to make sure that it can scale up to meet any increase in demand, and stacks everything within the submitted files, making sure that it waits for the appropriate reference data from those files, and makes sure that all submissions that come in are contained and processed in a timely manner,” says Wilson.
While Sopra Steria operates across the EU the firm generates about 20% of its revenues in the UK, where it operates across a variety of markets providing consultancy services around systems integration, business process service solutions, and IT infrastructure management. It has had an ongoing relationship with the FCA for around a decade, but a testing period of the Mifid II MDP began just six months prior to the directive’s launch. Although the system is running to expectation, it still requires undivided attention, says Wilson.
“We have a process whereby we continually work with the FCA and evolve with them like any system’s development to ensure we have control of the framework to make sure that the framework continues to evolve and develop,” he says.
One hurdle that the system needed to overcome was the change in the volume of transaction filing – within a sealed environment and with strong governance controls. To that end, it’s operating smoothly. “The system can grow and contract as it needs to without having any peaks and troughs within it,” says Wilson.
While the technology has been around for a few years now, the MDP’s launch marked the first time a regulator has used a cloud-based application to manage widespread regulatory filings, which ties in with the debate over whether regulations help drive innovations in the fintech market. Wilson was not prepared to comment on Europe’s other NCAs his firm may be hoping to work with on their Mifid II protocols, but it certainly seems the cloud may play an ever more important role in the execution and oversight of financial regulations. One wonders just how much that could influence the thought process behind the shaping of those regulations.
bobsguide is hosting a breakfast briefing in central London on December 7 to discuss data management. To find out more, click here.