The regulatory landscape for financial services in the UK remains rigorous, even post-Brexit. UK MiFID II reporting obligations continue to demand meticulous attention to detail, robust operational processes, and unwavering accuracy. For investment firms, trading venues, and systematic internalisers operating within the UK jurisdiction, the spectre of an FCA audit focused on transaction and transparency reporting compliance is a constant reality. Failing an audit is not merely an administrative hiccup; it can result in significant financial penalties, reputational damage, and enforced costly remediation programs.

Proactive identification and correction of common reporting errors are paramount for demonstrating robust compliance and ensuring a smoother audit experience. Five prevalent and critical UK MiFID II reporting errors that firms must urgently address before the auditors arrive at their door.

Understanding the Stakes: UK MiFID II Reporting in the Post-Brexit Era

While the core principles of MiFID II originate from EU legislation, the UK’s implementation, managed by the Financial Conduct Authority (FCA), now operates under the UK’s domestic regulatory framework. The UK MiFID II reporting regime, encompassing both transaction reports (RTS 22) and transparency reports (RTS 1, RTS 2, RTS 27, RTS 28), remains largely aligned with its EU predecessor but with specific nuances and references to UK legislation and the FCA Handbook (specifically, the Conduct of Business Sourcebook – COBS, and the Supervision Manual – SUP).

The FCA has consistently emphasised the importance of accurate and timely reporting. Data generated through UK MiFID II reporting feeds into market surveillance, supports the detection of market abuse (under the UK Market Abuse Regulation – UK MAR), enhances transparency for investors, and underpins the stability and integrity of UK financial markets. Errors in this data undermine these critical objectives, making them a high priority for regulatory scrutiny during audits.

The Critical Five: Pre-Audit Remediation Priorities

Here are the five most significant reporting errors that frequently surface during FCA audits, often leading to findings, skilled person reviews (Section 166), or enforcement actions:

Error #1: Incomplete or Inaccurate Transaction Reporting (RTS 22)

The Core Issue: This remains the single most frequent and severe category of error. It encompasses a wide range of failures:

Missing Reports: Entire transactions failing to be reported due to system gaps, misinterpretation of the scope, or operational failures (e.g., certain OTC derivatives, complex corporate actions, specific types of financing trades like securities lending).

Incorrect Fields: Populating mandatory fields incorrectly. Common culprits include:

• Trading Capacity: Misidentifying whether the firm acted as agent (matched principal often causes confusion), principal, riskless principal, or executing against own account.
• Client Identification: Errors in the Legal Entity Identifier (LEI) for eligible counterparties and professional clients, or incorrect use of client codes (especially problematic for non-LEI eligible clients like retail, where robust internal coding is crucial). Duplicate or inconsistent client IDs across reports are a major red flag.
• Instrument Identification: Using an incorrect ISIN, CFI, or other accepted identifier (e.g., using a depositary receipt ISIN instead of the underlying share). Failure to report when no ISIN exists (relying solely on other attributes).
• Price & Quantity: Simple data entry errors, incorrect application of rounding rules, or failing to report the correct currency.
• Venue Identification (MIC Code): Using an incorrect Market Identifier Code (MIC) or failing to report it accurately, especially for OTC trades where ‘XOFF’ is applicable.
• Short Selling Flag (UK MAR Article 26): Incorrectly flagging transactions executed under the short selling regulation.
• Algo ID & Waivers/Flags: Failure to correctly identify algorithmic trading strategies or apply appropriate flags (e.g., large in scale waiver, negotiated trade waiver).

Why it Matters to Auditors: Incomplete or inaccurate transaction data fundamentally impairs the FCA’s market surveillance capabilities and hinders the detection of market abuse. It directly contravenes the core objectives of MiFID II.

Pre-Audit Action:

• Conduct deep-dive sample testing across diverse asset classes and trade types.
• Reconcile internal trade capture data with submitted reports at the field level.
• Validate LEI statuses regularly (using the GLEIF database).
• Review instrument mapping logic, especially for complex or new products.
• Test logic for trading capacity, venue identification, and waiver flags.
• Implement robust pre-submission validation checks within reporting systems.
• Scrutinize exception reports generated by Approved Reporting Mechanisms (ARMs) daily.

Error #2: Deficient Instrument Reference Data (RTS 23)

The Core Issue: Accurate transaction and transparency reporting is impossible without high-quality underlying instrument reference data. Errors here cascade into all downstream reports. Key failures include:

Missing or Delayed Submissions: Failing to submit reference data for new instruments within the required timeframe (T+1 for admission to trading or T+1 after execution of first transaction).

Inaccurate Data Fields: Populating critical fields incorrectly:

• Mismatched ISIN/CFI: The ISIN and Classification of Financial Instruments (CFI) code do not align correctly.
• Incorrect Underlying Details: For derivatives, errors in the underlying ISIN(s), index name, or commodity details.
• Maturity Date/Strike Price: Errors in key terms for options, futures, and bonds.
• Trading Venue Admission: Incorrectly stating where an instrument is admitted to trading or traded.
• Complexity Indicator: Misclassifying the complexity of a product.

Lack of Timely Updates: Failing to update reference data promptly following corporate actions, maturity, delisting, or significant changes in terms.

Why it Matters to Auditors: Poor reference data integrity renders transaction reports meaningless and hinders market transparency. It prevents the FCA and market participants from accurately aggregating and analysing trading activity. It also impedes the correct application of transparency calculations (RTS 2).

Pre-Audit Action:

• Audit the instrument onboarding process: Ensure data capture at source is accurate and validation rules are robust.
• Implement automated checks for ISIN/CFI consistency and underlying asset validity.
• Establish clear ownership and processes for timely updates triggered by corporate actions or other events.
• Reconcile instrument data held internally against data submitted to the FCA or relevant mechanism.
• Regularly sample test reference data submissions against source documentation and market data sources.

Error #3: Failure to Meet Reporting Timeliness

The Core Issue: MiFID II mandates strict deadlines:

• Transaction Reports (RTS 22): Must be submitted by T+1 (the working day following execution) by close of business.
• Reference Data (RTS 23): As mentioned, T+1 for new instruments.
• Transparency Data (RTS 1/RTS 2): Pre-trade and post-trade transparency data must be published in real-time or as near to real-time as technically possible.
• RTS 27/28 Reports: Periodic summaries have specific deadlines (e.g., quarterly for RTS 27).

Why it Matters to Auditors: Late reporting undermines the real-time surveillance objectives of MiFID II and UK MAR. Delayed data reduces its utility for market participants and regulators alike, potentially obscuring time-sensitive market abuse patterns.

Pre-Audit Action:

• Monitor submission logs rigorously for any instances of late reporting.
• Investigate the root cause of any delays (e.g., system latency, manual intervention bottlenecks, connectivity issues with ARMs/APAs, internal approval delays).
• Implement automated monitoring and alerts for impending deadlines.
• Review capacity and resilience of reporting systems and connections.
• Ensure robust contingency plans are in place for system failures or market disruptions.
• Test the end-to-end reporting timeline under normal and stressed conditions.

Error #4: Inadequate RTS 27 & RTS 28 Reporting

The Core Issue: These reports, focused on the quality of execution obtained and the routing of client orders, are often treated as a secondary compliance task, leading to significant errors:

• Incomplete Coverage: Failing to report on all relevant instruments, venues, or client segments required under the rules.
• Inaccurate Calculations: Errors in calculating key metrics like price, cost, and speed of execution. Misapplication of the criteria for “likelihood of execution” or “price improvement”.
• Lack of Meaningful Analysis: Providing generic, boilerplate narratives that fail to genuinely analyse the data, explain material changes, or demonstrate how the analysis informs the firm’s order execution policy (OEP) and broker selection.
• Formatting & Accessibility: Not publishing reports in a machine-readable format (e.g., XML) or failing to make them easily accessible on the firm’s website for the required retention period.
• Missing Top 5 Venues (RTS 28): Inaccurate identification or omission of the top five execution venues used for client orders.

Why it Matters to Auditors: RTS 27/28 reports are crucial for demonstrating compliance with best execution obligations (COBS 11.2B). They provide transparency to clients and regulators about how orders are handled. Superficial or inaccurate reports suggest a firm is not taking its best execution duties seriously.

Pre-Audit Action:

• Conduct a thorough review of the last several RTS 27/28 reports against the FCA’s detailed requirements.
• Validate the underlying data sources and calculation methodologies for all reported metrics.
• Ensure the narrative provides specific, data-driven insights and clearly links findings to OEP reviews and changes.
• Verify correct venue identification and ranking logic.
• Check publication format, location, and accessibility.
• Ensure consistency between RTS 28 reports and disclosures within the OEP itself.

Error #5: Weak Governance, Oversight, and Reconciliation

The Core Issue: This is often the root cause of the previous four errors. Failures in governance manifest as:

• Lack of Defined Ownership: Unclear responsibility for the accuracy and completeness of reporting across different functions (Front Office, Operations, Compliance, IT).
• Insufficient Monitoring & Testing: Absence of regular, independent checks on the quality of reports. Reliance solely on ARM/APA validation, which is not foolproof. Failure to perform periodic reconciliations (e.g., between internal trade records and ARM submissions, between reference data submissions and internal databases).
• Poor Documentation: Lack of clear, up-to-date policies and procedures (P&Ps) detailing the reporting process, controls, data flows, and escalation paths. Inadequate record-keeping of testing, monitoring, and remediation activities.
• Inadequate Training: Staff involved in the reporting chain lack sufficient understanding of the regulatory requirements, the firm’s processes, and the importance of their role.
• Ignoring Rejections & Warnings: Failing to have robust processes to investigate, correct, and resubmit reports rejected by the ARM/APA or to act upon warnings and data quality indicators provided by these entities.
• Lack of Board/Senior Management Engagement: Reporting is seen as a purely operational issue without appropriate oversight and challenge at the highest levels.

Why it Matters to Auditors: The FCA expects a culture of compliance. Robust governance is the bedrock of effective and sustainable UK MiFID II reporting. Auditors will scrutinise management information (MI), committee minutes, testing reports, and P&Ps to assess the strength of oversight. Weak governance is a systemic failing.

Pre-Audit Action:

• Review and strengthen reporting governance frameworks: Clarify roles, responsibilities, and reporting lines (SMF 16/17/18 implications).
• Ensure comprehensive, detailed P&Ps are in place and readily available.
• Implement a rigorous, risk-based programme of ongoing monitoring and independent testing (at least annually).
• Establish formal reconciliation processes and document results.
• Develop clear MI for senior management and boards, focusing on key risk indicators (KRIs) like rejection rates, late submissions, and data quality scores.
• Mandate regular, role-specific training on MiFID II reporting obligations.
• Formalise processes for handling rejections, warnings, and data quality issues.
• Document evidence of senior management review and challenge.

Beyond the Five: The Importance of Holistic Data Quality

While these five errors are critical, firms must adopt a holistic view of data quality throughout their UK MiFID II reporting ecosystem. This includes:

• Data Lineage: Understanding the complete journey of data from source systems to the final report.
• Data Mapping: Ensuring accurate and consistent mapping of internal data fields to the required regulatory fields.
• Golden Source: Establishing authoritative sources for key data elements (e.g., client data, instrument data) to avoid duplication and inconsistency.
• Consistency Across Regulations: Ensuring alignment between MiFID II reports and data submitted under other regimes like UK EMIR or SFTR where overlaps exist (e.g., trade identifiers, counterparty data).

Preparing for Success: Your Audit Readiness Checklist

Before the FCA audit notification arrives, firms should proactively undertake the following:

1. Conduct a Comprehensive Gap Analysis: Based on the common errors above and FCA guidance/publications (e.g., Market Watch newsletters, thematic reviews).
2. Deep-Dive Testing: Go beyond standard monitoring. Test specific scenarios, complex products, and edge cases. Validate a statistically significant sample of reports against source data.
3. Review Governance Framework: Critically assess policies, procedures, committee minutes, MI, training records, and testing reports. Ensure clear ownership and accountability.
4. Reconcile Relentlessly: Perform end-to-end reconciliations between internal systems, ARM/APA submissions, and data published for transparency.
5. Scrutinize RTS 27/28: Ensure these reports are accurate, insightful, properly formatted, published, and demonstrate a clear link to the OEP.
6. Remediate Aggressively: Prioritise fixing identified errors. Document all remediation actions thoroughly.
7. Engage Senior Management: Ensure they understand the key risks, controls, and any outstanding issues. Prepare them for potential auditor questions.
8. Gather Evidence: Assemble documentation systematically – P&Ps, testing results, training logs, reconciliation reports, MI packs, committee minutes, remediation plans.

Accuracy as a Strategic Imperative

Compliance with UK MiFID II reporting is not a box-ticking exercise; it’s an ongoing operational discipline fundamental to market integrity and investor protection. The potential consequences of errors – FCA enforcement, financial penalties, reputational harm, and costly remediation – are severe. The five critical errors outlined – incomplete transaction reporting, deficient reference data, timeliness failures, inadequate RTS 27/28, and weak governance – represent the most common pitfalls identified during FCA audits.

Addressing these proactively, through rigorous testing, robust governance, clear ownership, and a relentless focus on data quality, is not merely about passing an audit. It’s about building a resilient compliance framework that supports sound business practices, enhances operational efficiency, and fosters trust with regulators and clients alike. In the complex and demanding environment of UK financial regulation, accurate UK MiFID II reporting is a non-negotiable strategic imperative. Don’t wait for the audit notification to start looking for these errors; begin the remediation process today. Your future audit readiness depends on it.