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Dear CEO | Release Date: 31st May 2022

To read a shorter summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Long Summary

This comprehensive letter from the Financial Conduct Authority (FCA) outlines the supervisory strategy for entities providing Data Reporting Services, specifically focusing on Approved Reporting Mechanisms (ARMs) and Approved Publication Arrangements (APAs). As integral components of market transparency, these entities play a crucial role in ensuring the integrity of financial markets by facilitating the dissemination of accurate and comprehensive trading data. The document delineates the FCA’s regulatory frameworks, expectations, and areas of focus, aiming to guide DRSPs towards compliance with regulatory standards and the mitigation of potential risks to market integrity.

Data Reporting Services Providers (DRSPs) are pivotal in maintaining the transparency and integrity of financial markets. Their services, which include reporting transaction details and publishing post-trade transparency reports on behalf of investment firms, are essential for the effective supervision of the market by both the FCA and investors. This letter provides a detailed overview of the regulatory environment that governs DRSPs, identifies the key risks within this sector, and outlines the FCA’s expectations for managing these risks effectively.

Regulatory Framework

The operational and compliance expectations for DRSPs are grounded in a robust regulatory framework, which includes:

Various onshored technical standards.

These regulations ensure that DRSPs operate within a structured and controlled environment, contributing effectively to market transparency.

Key Risks and FCA Expectations

In its thorough analysis, the FCA has pinpointed several risks within the DRSP sector that could potentially undermine market integrity and harm consumers:

Concentration Risk

Issue: The market dominance by a limited number of DRSPs might curb competition and stifle innovation, potentially resulting in diminished service quality.

Expectation: DRSPs are expected to maintain high service quality and reasonable pricing, fostering an environment that supports their clients’ compliance with regulatory reporting obligations despite the market’s concentrated nature.

Data Quality and Systems Control

Issue: Inadequate systems for managing erroneous or incomplete data can severely impact the core function of DRSPs—upholding market transparency.

Expectation: DRSPs must implement robust systems to guarantee the accuracy and completeness of the data reported, ensuring it upholds the standards required for maintaining market integrity.

Operational Resilience

Issue: Insufficient operational resilience can lead to disruptions in service, which could affect market stability and the reliability of data.

Expectation: DRSPs should enhance their operational frameworks to effectively manage disruptions and ensure the continuity and reliability of their services.

Supervisory Strategy and Programme of Work

The FCA’s supervisory strategy is comprehensive and will adapt to changes within the sector. It will utilise a variety of information sources and supervisory tools to ensure compliance and facilitate improvements where necessary. The strategy involves:

Supervisory Priorities

Service Quality: Monitoring and ensuring that DRSPs provide high-quality services that are crucial for their clients to meet regulatory reporting requirements.

Data Management: Enhancing the processes and controls around data quality to prevent inaccuracies and data mismanagement.

Operational Resilience: Developing robust mechanisms within DRSPs to mitigate the impacts of operational disruptions and maintain service continuity.

Conclusion and Actionable Takeaways

Immediate Actions for DRSPs:

Strategic Considerations for Long-Term Compliance:

DRSPs are encouraged to proactively engage with the directives outlined, ensuring their operations are compliant with current regulations and are prepared for future market challenges. The FCA will continue its rigorous monitoring of this sector, providing necessary guidance and enforcing compliance to protect market participants and uphold financial system integrity.

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