Transaction reporting has always been the backbone of market abuse surveillance, but the rules of the game are shifting. As regulators deepen their reliance on MiFIR reporting data, the bar for what constitutes adequate control has quietly risen, and many firms are only beginning to realise their frameworks have not kept pace.
According to ACA Group, the core expectation is no longer simply that firms report. It is that they can prove their reporting is complete, consistent, and defensible. Frameworks that once satisfied supervisors are being scrutinised anew, particularly where independence is thin on the ground, documentation is sparse, and assurance has failed to evolve alongside changes in business activity and operating models.
ACA Group recently delved deeper into what it sees as the three lines in MiFIR regulatory reporting.
Reform is compounding the pressure. Consultation paper CP25/32 from the Financial Conduct Authority signals a reshaping of the UK transaction reporting regime, bringing simplification and scope changes. But the FCA's underlying reliance on reporting data as a surveillance tool is unchanged. In short, firms are expected to demonstrate control, not merely compliance.
Why change programmes are a flashpoint for governance risk
Regulatory reform acts as a stress test. When firms are focused on interpretation, implementation timelines, and technical delivery, structural weaknesses in their reporting governance become easier to overlook, and more likely to compound. Legacy assumptions can be quietly carried forward into new frameworks, control gaps can go unaddressed, and the window for proactive remediation narrows.
The question is not whether firms can implement change. It is whether they can do so on a foundation of genuinely evidenced control across all three lines of defence.
Separation in theory, blurring in practice
The three-lines-of-defence model is well understood in principle. In a transaction reporting context, the first line owns the creation and submission of reports. The second line, typically compliance, provides independent oversight. The third line, whether internal audit or an external reviewer, delivers periodic assurance.
In practice, the boundaries are frequently eroded. Compliance teams are often drawn into first-line activity, filling gaps in expertise, resource, or system capability where the operational function cannot cope alone. When that happens, the intended separation collapses, and the independence the model is meant to guarantee is undermined.
Second-line oversight, where it does exist, commonly draws on management information generated by the very teams it is supposed to monitor. That creates a structural ceiling on challenge, particularly where reporting logic is highly technical, assumptions have never been formally documented, or recurring issues have become so familiar they cease to attract scrutiny. Third-line assurance, meanwhile, tends to be periodic and retrospective, offering snapshots rather than sustained confidence.
A gradual erosion with serious consequences
The cumulative effect is a slow dilution of independence. Known issues are tolerated rather than challenged. Control effectiveness is assumed rather than evidenced. Remediation targets symptoms rather than root causes. Resourcing constraints limit how deeply issues are investigated, allowing errors to quietly accumulate.
The risk is not theoretical. Reporting frameworks can appear fully compliant on paper while harbouring hidden errors, inconsistent field-level assumptions, or undocumented logic. When those problems surface, often through regulatory engagement or a formal review, remediation is invariably broader, more disruptive, and more costly than it would have been had issues been caught earlier.
Effective segregation of duties is not an abstract governance principle. During periods of regulatory change, it is the mechanism by which firms demonstrate that their transaction reporting frameworks are not just compliant, but independently challenged and fit for purpose.
To address governance weaknesses and prevent risks from compounding during regulatory reform, firms should consider a targeted set of actions. Ownership across the three lines should be clearly defined, with delivery, oversight, and assurance not implicitly shared across functions. Independent monitoring of reporting accuracy and completeness - drawing on sampling, reconciliation, and objective challenge - should be introduced separately from day-to-day reporting operations.
Reporting outcomes should be tested against regulatory expectations, not merely internal interpretations, to ensure data is capable of supporting effective market abuse surveillance. Where issues arise, they should be investigated to root cause rather than resolved through tactical fixes that allow errors to re-emerge. And independent challenge should be embedded in change programmes from the outset, so new requirements are implemented on a foundation of proven control rather than inherited assumption.
An independent view as a strategic asset
Many transaction reporting frameworks were built at pace in the run-up to the MiFID II implementation deadline of 3 January 2018, rather than through deliberate design. Weaknesses embedded at that point can remain dormant for years before surfacing at the most disruptive moment possible.
An independent perspective allows firms to assess their frameworks as regulators do - objectively, from the outside. It surfaces where assumptions have not kept pace with changes in business activity, personnel, or systems, and identifies root causes rather than symptoms. That capability is particularly valuable when operating models are under pressure from reform and historical assumptions are being tested.
Firms that can demonstrate robust segregation of duties, independent assurance, and defensible reporting outcomes are better positioned to engage constructively with regulators, absorb further reform, and grow without accumulating unmanaged reporting risk. Independent oversight does not replace internal expertise - it strengthens it, ensuring frameworks remain resilient and credible as regulatory expectations continue to rise.
ACA supports firms across the transaction reporting lifecycle, from independent accuracy and completeness testing to governance enhancement, control framework design, and operating model optimisation. Its Regulatory Reporting Monitoring and Assurance solution, ARRMA, combines data-led analysis with specialist regulatory expertise to uncover hidden errors, identify root causes, and assess whether reporting frameworks are sufficiently robust to support regulatory change and business growth.