Authorised Trader Lists & MiFID II Compliance

Guest written by Ian Davey - Scorpeo UK Limited

Historically, authorised trader lists were infrequently updated, usually when opening an account at the request of a third party, such as a Prime Broker doing initial due diligence.  After this point lists were either updated annually or if a trader changed roles or left a firm.  Often these lists were simple faxed pages of names with signatures.   MiFID II means this old way of doing things must change significantly; not only on the data content, but also its timeliness and accuracy.  

MiFID II requires buyers and sellers of financial instruments to be individually identified, either by a Legal Entity Identifier (LEI), or on a person by person basis, where those responsible for each trade are identified by name, date of birth and a ‘buyer identification code.’1   This code is defined by the nationality of the trader and is usually a Passport number, but varies by jurisdiction.  

This is further complicated by those with dual nationalities, where the EU nationality is used for the buyer identification code or for those with dual EU nationality, the first alphabetical code, with France (FR) for example ahead of Sweden (SE). 

This places a whole range of data collection and screening firmly on the shoulders of firms looking to comply with MiFID II, who now must actively manage their authorised trader lists and take legal responsibility for its accuracy.  Without some checks and balances it is clear there is significant risk that incorrect information will be used in breach of the MiFID II directive.

At a minimum internal trader lists now require a basic data set:  Name, Nationality, Date of Birth, Passport number (or Tax ID number, national registration number etc) and date of expiry of Passport or equivalent.   Firms will have to manage a way to ensure these lists are kept current and managed prior to Passport numbers changing.

Cygnetise is a decentralised Blockchain based application for managing Authorised Signatory and Trader Lists. Linear Investments, a boutique prime broker and hedge fund incubator manage their lists on this application ensuring adherence to MiFID II.  Jerry Lees, Linear’s Chairman, added he has always strived to integrate the best of breed technology solutions into the ever increasing regulatory world and that Cygnetise cleverly solves potential pitfalls in signatory lists.“

As an additional problem, firms also need to consider the upcoming UK GDPR regulations – how do you keep this information secure and independently stored within the GDPR principles? The combination of these regulatory changes, requires firms to take stock of their current processes – are they fit for purpose?

1. E.g. 5.11 Block 4 : Investment decision within the Firm Field (page 43) “As set out in Article 8(1) of Commission Delegated Regulation (EU) 2017/590, this field [National ID of Trader 1] should always be populated when the Investment Firm is dealing on own account since it is putting its books at risk and is therefore deemed to be making an investment decision.”  https://www.esma.europa.eu/sites/default/files/library/2016-1452_guidelines_mifid_ii_transaction_reporting.pdf