MiFID II: transaction reporting

With an incredible 1.7 million paragraphs of rules and regulations¹ to be waded through, the new regulations under MiFID II presented a massive challenge for the wealth management sector. SEI was determined not only to fulfil our own responsibilities as service providers, but to support all UK clients of our SEI Wealth Platform^SM to be fully compliant. Working closely with the regulators, industry experts and client firms we developed a rigorous and efficient response – with the beefed-up requirements for transaction reporting top of the agenda.

Assessing the MiFID II challenge

Our response to MiFID II kicked off way back in early 2015, when we set up an internal working group of legal and compliance experts, technologists and client relationship managers to examine the initial ESMA guidelines in detail. Their first step was to undertake an elimination exercise and draw up a confirmed matrix of issues affecting either SEI as a regulated entity or our clients.

In July 2015, we hosted a briefing session, at which clients were able to engage directly with our own internal experts, consultants from EY and legal experts from Simmons & Simmons LLP to gain a rounded view of the implications of the regulations. Post-briefing, we encouraged clients to complete their own thematic reviews to assess the specific impacts to their businesses. Feedback quickly confirmed transaction reporting as the strongest priority for firms, so it became the focus for us.

A winning team

The project was overseen throughout by a core team of four senior SEI staff, to ensure consistency for clients. This included our solutions regulatory lead, and internal transaction reporting expert, and Mike Feeley, our Director of Proposition Strategy and Solutions Design – the project sponsor from a solutions perspective. They were supported by a UK-based development team to help ensure the most effective and efficient collaboration.

Transaction reporting workshops

Having agreed on transaction reporting as the priority, from November 2016 the project team began running quarterly workshops with an interactive and collaborative format, which was an immediate hit with clients. Project sponsor Mike Feeley explains:

“We provided updates from our internal experts, but we also invited external speakers to share a wider industry view. These included a range of experts, from Morningstar and Simmons & Simmons to Stephen Hanks of the FCA.”

With up to 50 people in the room at these events, clients were able to use the power of their combined voice with regulators. “As well as Stephen Hanks, members of the FCA MiFID II round table were also present, so these sessions provided a really open forum for firms to air their views,” says Mike.

To maintain momentum, we set clients challenges to solve as ‘homework’ between workshops. The main aim was to ensure all the necessary information was available upfront to complete reports for every account on the Platform.

“We started creating data templates and gave clients the job of completing them,” says Mike. “For example, analysis showed us that 60% of accounts on the Platform didn’t have a National Identifier. As for LEIs (Legal Entity Identifiers), no clients had these at the beginning, as they hadn’t previously existed, but we made clear we’d need that data on the platform to provide them with the service. As with the rest of the project, we maintained a dialogue to make the process as smooth as possible: “From that, clients could challenge back – where should the information sit? How can I access it?”

Planning

While clients were gathering and checking additional data, the project team was working hard to find the most efficient way of populating reports to meet the new regime. How far could we leverage existing information? And what was the best way to build out the new requirement in terms of both efficiency and added value to clients?

Having scoped the requirement, the project team then made decisions on the best way to resource the project, developing a clear structure to define what needed to be built, when and by whom. This took the pressure off of our clients, who were able to minimise the internal resource and planning required at their end to manage the process.

Outside expertise

In Summer 2017, we invited EY into our offices to complete a 6-week project. Combining all open client questions with our own questions as a legal entity. We worked with EY’s experts to conduct a deep dive into the required solution and then arranged informal feedback sessions between EY and our clients so they could benefit from the key insights.

Development

By June 2017, we had progressed firmly into the development stage and moved to a six-weekly cycle for the client workshops.To ensure compliant reporting across the widest range of possible transactions, the project team consulted with clients to devise over 40 transaction scenarios. These scenarios then had to be tailored and tested with each client. Mike explains:

“Some of our clients are execution-only, some are discretionary only, and some are mixed, so we needed to make sure we covered all three types. In addition, all client firms were set up slightly differently on the platform, and because each client interpreted the guidelines in their own way they wanted reporting tailored to them.”

Fortunately, the SEI Wealth Platform’s single, configurable code base created significant efficiencies, allowing our software engineers to build a core solution that could then be tailored to the specific needs of individual clients. As the development team began building out new data fields in the platform, they gave clients three months’ advance notice to allow firms time to build out their own systems for capturing and supplying the required data.

Agility and flexibility

Throughout the two-year run-up to the go-live date, ongoing amendments from the regulators kept the project team on their toes. Mike remembers a particularly challenging example: “Around 5 December 2017, the regulators made some fundamental changes regarding LEIs and expiry dates. We received a one-pager containing a hyperlink to a five-page document, which led in turn to 200-pages of notes. Even our approved reporting mechanism UnaVista couldn’t manage the change quickly, so we put manual processes in place until we could provide a more permanent solution.”

Meanwhile, other late changes came from clients. “One firm notified us in December 2017 that they were becoming an Irish entity and would need to report to the Irish Central Bank (ICB), rather than the FCA,” says Mike. “We successfully facilitated that change within two weeks.”

Implementation

The complexity of the build meant it was important for firms to have time to finalise their side, so we delivered our final code release prior to going live in November 2017. Throughout December 2017, we operated a parallel run for clients. Then, on the 3^rd January 2018, we flipped the switch and went live.

A ‘war room’ had been set up in readiness for launch day, fully staffed by the project team and the developers who had written the code. The first week was intense, as Mike Feeley explains:

“We had a 7am briefing call with clients every morning, backed up by a daily email highlighting any issues. We also acted as a liaison between clients and the FCA where they had specific questions or requests.”

Beyond the frenzy of that first week, the war room kept running throughout January 2018, supporting clients who had complications getting data from customers or who discovered complex scenarios they hadn’t thought of prior to going live.

Finessing and review

In late February 2018, we provided a software update with process improvements, mainly to finesse reporting clarity and streamline the exceptions process. After that, a lessons-learned session in early March marked the culmination of three years’ hard work. “Most clients were more interested in moving on to the next project. We knew that was a good sign the implementation had been a success,” says Mike.

Ongoing support

When the project itself concluded, we continued to provide information, tools and support to clients, as SEI Transaction Reporting Manager Simon James confirmed:

“We continued to help clients deal with a small number of exceptions each day, perhaps due to new end clients being on-boarded, or new users being added to the Platform. Although the responsibility for supplying accurate data lies with the client, the job often falls to a busy investment manager or analyst who has a host of other priorities.”

An effective blueprint

As the first formal project to address MiFID II, transaction reporting created an effective blueprint to take forward as we developed further solutions for clients. The merits of the forum and workshop formats and the overall collaborative approach were confirmed by overwhelmingly positive feedback from clients, who also praised the efficiencies and savings on resource they benefited from as Platform clients.

¹ What is MiFID II Regulation?, Insider

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