On a first pass, Market Watch 81 might appear relatively uncontroversial in giving feedback on the FCA’s recent findings on transaction reporting. However, there is a lot of food for thought here. 

The really interesting points relate to the depth of governance a firm needs to satisfy the FCA. I would pick up three points in this context, all of which sit under what I would describe as ‘the governance umbrella’:

1. The importance of documentation. The old days in which firms might delegate most of this area to the technical IT transaction reporting specialists need to be over. The FCA’s messages on having adequate documentation, including in relation to change management, clarity about first- and second-line roles, escalation mechanics, adequate data lineage, escalation mechanics and MI are all clear. Firms need to review all of the types of documentation mentioned in the Market Watch and check that they have them in place and that they are reviewed regularly.
2. The adequacy of internal resourcing within the firm and the balance of experience needed to monitor and oversee transaction reporting in both first and second line at all levels. I think that there are two key messages which come out of these points in the Market Watch. The first is that the senior first line must take adequate interest and responsibility for this area and perform its oversight role. This means both taking an interest and adequately equipping oneself to ask the right questions and pick up on trend analysis. Secondly, there is a more fundamental point here about how far delegation can go. There are a couple of references to the need for the firm to retain adequate expertise to monitor and oversee the technical side of the transaction reporting build and implementation. I see this as potentially being quite critical of the level of outsourcing that has become popular in parts of the market and as challenging firms to make sure that their second line retains enough experience to be able to challenge consultants in build phase and outsource service providers in the implementation phase. This has real cost implications for firms.
3. A general message here about the need for a dynamic approach to this area. This is a recurrent theme in the FCA’s comments. For example, the FCA points out the need to update controls when reporting processes change and the need to dynamically incorporate transaction reporting into the risk and control framework of the firm.

Taken in the round, I think that this is a key set of observations by the FCA. They reflect the world of thorough compliance and legal documentation expectations which we now live in. The combination of this and the need for a clear senior manager responsibility cascade through both first and second line. In my view, a Market Watch to pay much attention to and a clear warning to any firms who neglect to do so.