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The UK financial regulator has rejected calls from hedge funds for a big reduction in how much transaction data it requires from market participants, opting instead for a more modest scaling back of reporting rules.
The Financial Conduct Authority on Friday presented plans to streamline UK transaction reporting requirements that it said would save companies more than £108mn a year by removing or changing rules that are considered “disproportionate”.
Hedge funds have called on the UK to go further in aligning its rules with much of the rest of the world, including the US and Japan, by removing reporting requirements on buy-side investors and relying solely on transaction data provided by sell-side institutions.
But the FCA rejected this, saying the “international nature” of the UK market compared with the US and Japan meant more than half of transactions were done by British-based buy-side investors dealing with sell-side institutions based outside the country.
Scrapping buy-side reporting requirements would “result in complete loss of oversight for 56 per cent of transactions executed by buy-side firms” and would have “a material impact on our and the Bank of England’s ability to monitor corporate debt markets”, it said.
“We are disappointed that UK fund managers are not removed from the transaction-reporting rules entirely,” said Adam Jacobs-Dean, global head of markets, governance and innovation at the Alternative Investment Management Association, which represents hedge funds and private credit groups. “While the FCA is proposing a significant overhaul of the regime with some improvements, the biggest drag on the UK investment management industry’s competitiveness will remain.”
Rob Hailey, head of Emea government affairs at the Managed Funds Association, which represents hedge funds, said: “Today’s consultation is a welcome first step, but the FCA should go further to eliminate redundant dual-sided transaction reporting requirements.”
The FCA said its initial proposals would reduce some of the 7bn transaction reports it receives each year under the Markets in Financial Instruments Directive (Mifid) that the UK inherited from EU law and which cost companies £493mn a year.
The regulator admitted “we do not regularly use some of the information we collect under these regimes, creating a potentially disproportionate cost on firms”.
It plans to remove requirements to report trades in foreign exchange derivatives as well as transactions in 6mn instruments that are only traded on EU venues. It is also proposing to reduce the period for correcting historic reporting errors from five to three years.
Therese Chambers, the FCA’s joint executive director of enforcement and market oversight, said: “We can be smarter, and by clarifying and streamlining requirements, we expect to receive more accurate and complete reports.”
The regulator plans to establish a working group to examine comprehensive harmonisation and elimination of duplication between the three main reporting regimes in UK financial markets, but it said this would be done in a more “long-term” process with the Treasury and BoE.
As well as Mifid, reporting requirements are also imposed on thousands of market participants under the UK European Market Infrastructure Regulation and the UK Securities Financing Transactions Regulation. The FCA said more than 1,000 companies had to submit transaction reports under at least two of these regimes, of which 93 are caught by all three.
“So, we propose a gradual transition towards a more streamlined framework for reporting across regimes,” it said. “Our approach aims to minimise change costs for firms.”