How to tackle the management of Authorised Trader Lists under MiFID II
What are the challenges of managing Authorised Trader Lists (ATLs)? Here is a quick guide on how to tackle the management of ATLs under MiFID II.
MiFID II, the Markets in Financial Instruments Directive, revolutionized the European financial markets landscape when it came into effect in 2018. One of its primary objectives is to increase transparency, improve investor protection, and promote more resilient markets. For financial firms operating under MiFID II, maintaining compliance with its vast array of requirements can be challenging. Among these, managing Authorised Trader Lists (ATLs) stands out as a crucial component that often demands significant attention from firms.
In this article, we will explore what ATLs entail, the challenges in managing them under MiFID II, and practical steps to ensure compliance.
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Understanding Authorised Trader Lists under MiFID II
An Authorised Trader List is essentially a register of individuals permitted by a firm to execute transactions on its behalf. These traders must be authorised by the firm and, critically, must comply with MiFID II regulations. Firms are responsible for ensuring that each authorised trader meets the necessary qualification and competency standards and adheres to regulatory requirements like transparency, best execution, and reporting.
MiFID II mandates that firms operating within its scope maintain detailed and up-to-date lists of their authorised traders. These lists are integral to ensuring market integrity, preventing fraud, and ensuring that trades are executed within regulatory boundaries. A firm’s failure to effectively manage its ATL can lead to breaches of compliance, potentially resulting in fines and reputational damage.
Additionally, MiFID II requires that the list of authorised traders be shared with every counterpart they trade with. This ensures that both sides of the trade can report on the transaction, detailing who was authorized to execute it. While this approach provides greater transparency, the process of distributing ATLs is often manual, with firms frequently emailing scanned PDF copies. This outdated method raises several challenges.
Challenges in managing Authorised Trader Lists
Managing Authorised Trader Lists under MiFID II can be complex for several reasons:
Regulatory complexity: MiFID II’s stringent rules mean that the burden of compliance is high. Firms must ensure that traders on the list are fit and proper to carry out trading activities and that their activities are appropriately recorded and reported.
Frequent updates: The dynamic nature of trading desks often results in frequent personnel changes. With traders moving between firms, taking on new roles, or leaving the industry altogether, keeping the ATL current can be a challenge. This is especially burdensome in organisations with high turnover, as each change requires a fresh update to all counterparts.
Version control issues: When receiving updated ATLs via email, it can be challenging to ensure the latest version is in use. Financial organisations often face difficulties in guaranteeing that the list being distributed is the most recent, which raises the risk of unauthorised traders executing trades.
Cross-border operations: Firms with operations spanning multiple jurisdictions face additional complexities. MiFID II is a European regulation, but firms operating globally must ensure that their traders comply with multiple sets of rules depending on where they operate.
Audit trails and reporting: MiFID II requires firms to maintain detailed records and audit trails of who is authorised to trade and the conditions of their authorization. However, without automated systems, firms may struggle to keep historical records of each version of their ATLs, complicating dispute resolution when trying to prove that a trader was authorised at a particular point in time.
Manual processes: Many financial organisations still use manual processes, such as emailing scanned copies of their ATLs. This approach is inefficient, prone to errors, and can lead to delays in counterparties receiving updated lists, potentially leading to compliance breaches.
Penalties for non-compliance
Failure to adhere to MiFID II regulations can result in severe penalties. Recent years have shown financial institutions being hit with hefty fines for non-compliance. For instance, in 2018, the FCA fined Santander nearly £33 million for breaches related to governance and the unfair treatment of customers. These penalties highlight the importance of efficient, compliant ATL management systems.
The potential for regulatory penalties underscores the need for financial organisations to adopt a solution that reduces risks and ensures ongoing compliance with MiFID II. Relying on outdated, manual processes can expose firms to unnecessary risks and substantial fines.
Key steps to effective authorised trader management
To address these challenges, firms need to adopt a structured approach to managing their Authorised Trader Lists. Here are some key steps to take:
1. Centralise management systems
One of the most effective ways to tackle ATL management is by centralising the process through a dedicated system. Many firms still rely on manual or fragmented processes that result in errors and omissions. A centralised system allows for better oversight, real-time updates, and integration with other compliance functions. Additionally, having a single source of truth for all authorized traders helps ensure that all changes are accurately tracked and reported.
2. Automate compliance checks
Automating compliance checks can significantly reduce the workload for compliance teams. MiFID II requires that traders undergo continuous assessments to ensure they remain compliant with regulatory requirements. Automation can streamline these checks by regularly reviewing qualifications, trading activities, and any changes in an individual’s status (e.g., if they switch roles or move to a different firm).
3. Implement real-time monitoring and alerts
Real-time monitoring is critical to ensuring that only authorized individuals are executing trades on behalf of the firm. Implementing a system that monitors trading activities in real-time and raises alerts when an unauthorised individual attempts to trade is a vital safeguard. Such systems can also detect anomalies in trading behaviour, which can be an early warning sign of potential regulatory breaches or misconduct.
4. Regular audits and training
Regular audits are essential to verify that your ATL is up-to-date and that all regulatory requirements are being met. Firms should also ensure that all authorised traders receive ongoing training on MiFID II requirements, particularly in areas such as market abuse, best execution, and post-trade transparency. Keeping traders informed about regulatory changes and firm-specific compliance processes can help mitigate the risk of unintentional non-compliance.
5. Cross-jurisdictional coordination
For firms operating across borders, coordinating ATL management across multiple jurisdictions is crucial. Firms must ensure that traders who operate in different regions understand the specific requirements of each regulatory regime they are subject to. Implementing a global compliance framework that accommodates both MiFID II and other relevant regulations can help ensure compliance across the board.
6. Establish a robust audit trail
MiFID II mandates that firms maintain a detailed audit trail of authorized traders. This includes records of when a trader was added to or removed from the ATL, any changes in their authorization status, and records of their trading activity. A robust audit trail not only ensures compliance but also provides transparency in the event of an investigation by regulators.
How Cygnetise helps manage Authorised Trader Lists
Cygnetise offers a digital solution to the management of Authorised Trader Lists. With its cutting-edge technology, Cygnetise allows firms to manage their ATL in real time, ensuring that updates are instantly reflected and accessible to all relevant parties. Thus, firms can eliminate the need for manual processes like emailing scanned copies of ATLs, reducing the risk of errors and ensuring that counterparties always have access to the latest version of the list.
The platform also maintains a complete historical record of all changes made to the ATL, simplifying audit trails and providing transparency in the event of disputes. Additionally, Cygnetise automates compliance checks, ensuring that only authorised traders execute trades, thereby significantly reducing the risk of regulatory breaches. With its secure, scalable solution, Cygnetise helps financial organisations efficiently manage their ATLs and stay compliant with MiFID II’s requirements.