How Does the Removal of RTS 28 in the UK Affect a Firm’s Ability to Demonstrate Best Execution? ▴ Question

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Concept

The removal of the Regulatory Technical Standard 28 (RTS 28) reporting obligation in the United Kingdom represents a significant recalibration in the philosophy of regulatory oversight, moving from a prescriptive, public disclosure model to a regime centered on a firm’s internal accountability and the substance of its execution quality. The core legal and ethical duty for a firm to achieve the best possible result for its clients when executing orders remains unaltered. The change, effective from December 1, 2021, was a direct response to the industry-wide assessment that the RTS 28 reports, which mandated an annual public summary of the top five execution venues used and a qualitative assessment of execution quality, were failing in their primary objective.

These reports were conceived as a tool to enhance transparency and empower investors to make informed judgments about their brokers’ execution practices. The underlying theory was that by making venue selection public, market forces would drive firms toward those offering superior execution quality. In practice, the output was found to be of limited utility. The Financial Conduct Authority (FCA) noted that the intended audience, including both retail and institutional clients, seldom accessed these reports.

The data within was often aggregated to a level that obscured meaningful analysis, was backward-looking, and failed to provide the specific context needed by a sophisticated client to properly scrutinize a firm’s execution strategy for their particular type of business. The cost of producing these detailed reports was substantial, creating a significant compliance burden without a commensurate benefit to market transparency or investor protection.

The abolition of RTS 28 reporting did not abolish the best execution duty itself; it removed a specific, and ultimately ineffective, method of demonstrating compliance.

Consequently, the UK’s departure from this reporting framework places a greater emphasis on the robustness of a firm’s internal best execution policies, monitoring arrangements, and governance structures. The fundamental obligation, as enshrined in the FCA’s Conduct of Business Sourcebook (COBS), requires firms to take all sufficient steps to obtain the best possible result for their clients, taking into account price, costs, speed, likelihood of execution and settlement, size, nature, or any other consideration relevant to the execution of the order. The removal of RTS 28 means that the method of proving adherence to this principle is now less about public, standardized reporting and more about a firm’s ability to provide a comprehensive and coherent defense of its execution practices to the regulator upon request.

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The Enduring Mandate of Best Execution

Understanding the shift requires a clear distinction between the act of reporting and the act of executing. RTS 28 was a post-trade transparency exercise. Best execution is a continuous, front-to-back obligation that permeates a firm’s entire trading and investment process. It encompasses:

Order Handling ▴ The processes and systems in place to manage client orders efficiently and fairly.
Venue and Broker Selection ▴ The methodology for choosing where and with whom to execute orders. This includes not just regulated markets and multilateral trading facilities (MTFs), but also systematic internalisers, brokers, and other liquidity sources.
Execution Monitoring ▴ The real-time and post-trade analysis of execution quality against relevant benchmarks.
Governance and Oversight ▴ The establishment of clear lines of responsibility, regular reviews of execution arrangements, and a formal governance structure to challenge and validate the firm’s approach.

The FCA’s stance is unequivocal ▴ firms must still be able to demonstrate, with clear evidence, that they are meeting these obligations. The focus has simply moved from a public, and largely ignored, report to the internal, auditable processes that genuinely drive execution outcomes. This places a greater onus on firms to not only have effective policies but to be able to articulate and evidence their effectiveness through detailed internal records and analysis.

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Strategy

In a post-RTS 28 environment, a firm’s strategy for demonstrating best execution must evolve from a compliance-driven reporting task to a dynamic, data-centric framework of continuous monitoring and governance. The absence of a mandated public report elevates the importance of a firm’s internal narrative and its ability to substantiate that narrative with robust, granular data. The strategic imperative is to build a demonstrable and defensible process that proves the firm is consistently seeking the best possible outcomes for its clients, tailored to their specific needs and the nature of their orders.

This strategic shift necessitates a move away from reliance on aggregated, historical data, as was the case with RTS 28, towards a more proactive and analytical approach. Firms must now harness a wider array of data sources and analytical tools to provide a comprehensive picture of their execution quality. This includes leveraging market data from various providers, execution data from venues and brokers, and increasingly, sophisticated Transaction Cost Analysis (TCA) to benchmark performance. The core of the new strategy is to treat best execution not as a static, annual report, but as a live, evidence-based discipline that is integrated into the firm’s daily operations and governance structure.

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Pillars of a Modern Best Execution Strategy

A robust post-RTS 28 strategy is built on several key pillars:

Enhanced Data and Analytics ▴ The foundation of any credible best execution framework is data. Firms must invest in the systems and expertise to capture, process, and analyze a wide range of execution data. This goes beyond simple price and cost metrics to include factors like speed of execution, fill rates, price impact, and comparisons to relevant benchmarks (e.g. VWAP, TWAP, arrival price). TCA becomes a central component of this, providing the quantitative rigor needed to assess performance across different venues, brokers, and algorithms.
Dynamic Policy Management ▴ A firm’s best execution policy can no longer be a static document reviewed annually. It must be a living document that reflects the firm’s current execution arrangements, the venues and brokers it uses, and the rationale for its choices. The policy should be regularly updated to reflect changes in market structure, the availability of new liquidity sources, and the results of the firm’s own execution quality monitoring.
Strengthened Governance and Oversight ▴ With the removal of the public accountability mechanism of RTS 28, the role of internal governance becomes paramount. Firms must have a dedicated committee or function responsible for overseeing best execution. This body should be empowered to challenge the firm’s execution practices, review monitoring reports, and ensure that any identified deficiencies are remediated. The minutes and actions of this governance body form a critical part of the audit trail that demonstrates a firm’s commitment to best execution.

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From Prescriptive Reporting to a Principles-Based Framework

The table below contrasts the old RTS 28 regime with the strategic approach required in the current environment.

Aspect	RTS 28 Approach (Pre-Dec 2021)	Post-RTS 28 Strategic Framework
Primary Focus	Public disclosure and standardized reporting.	Internal governance, continuous monitoring, and demonstrable compliance.
Data Utilized	Aggregated, historical data on top five venues.	Granular, real-time and post-trade data from multiple sources, including TCA providers.
Demonstration of Compliance	Annual publication of the RTS 28 report.	Comprehensive internal audit trail, including policies, monitoring reports, and governance minutes.
Client Engagement	Largely passive, through a report that was rarely read.	Proactive and tailored, providing clients with meaningful, context-specific information on execution quality upon request.

Effective best execution strategy now hinges on a firm’s ability to create a compelling, evidence-backed internal narrative of its execution quality.

Ultimately, the removal of RTS 28 empowers firms to design a best execution framework that is genuinely tailored to their business model and client base. It replaces a one-size-fits-all reporting requirement with a more intelligent, principles-based approach. However, this increased flexibility comes with increased responsibility.

Firms that fail to invest in the necessary data, analytics, and governance will find themselves exposed in the event of an FCA inquiry. The winners in this new landscape will be those who view best execution not as a compliance burden, but as a source of competitive advantage and a core component of their client value proposition.

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Execution

Executing a best execution strategy in the absence of RTS 28 requires a disciplined and systematic approach to data, analysis, and governance. Firms must construct an operational framework that can withstand regulatory scrutiny and provide tangible evidence of their commitment to achieving the best possible outcomes for clients. This framework is not a single project but a continuous cycle of monitoring, analysis, and refinement.

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Building a Defensible Best Execution Framework

The operational execution of a modern best execution framework can be broken down into three core components ▴ Data and Monitoring, Analysis and Review, and Governance and Control. Each component must be robustly implemented and documented to create a comprehensive and defensible audit trail.

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Data and Monitoring

The starting point for any best execution framework is the systematic collection of relevant data. Firms need to move beyond basic trade details and capture a rich dataset that allows for meaningful analysis. This includes:

Order Characteristics ▴ Instrument, order type, size, duration, and any specific client instructions.
Execution Details ▴ Venue, broker, algorithm used, execution price, costs (explicit and implicit), speed of execution, and fill rate.
Market Data ▴ Relevant benchmark data for the time of execution, such as the state of the order book, quoted spreads, and benchmark prices (e.g. arrival price, VWAP).

This data should be fed into a monitoring system that allows for regular, ideally automated, analysis. The table below outlines a sample structure for a best execution monitoring dashboard.

Metric Category	Key Performance Indicator (KPI)	Description	Analysis Dimension
Price	Price Improvement	Execution price versus the best quoted price at the time of the order.	By venue, broker, asset class.
Cost	Total Cost Analysis	Analysis of all costs, including commissions, fees, and implicit costs like market impact.	By execution strategy, order size.
Speed	Order Fill Time	Time from order receipt to final execution.	By venue, time of day.
Likelihood of Execution	Fill Rate	Percentage of orders executed successfully.	By instrument, market conditions.

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Analysis and Review

Once the data is collected, it must be subjected to rigorous analysis. This is where TCA plays a critical role. TCA provides an objective, quantitative assessment of execution quality by comparing trade outcomes to a variety of benchmarks.

The analysis should be conducted regularly (e.g. quarterly) and the findings should be documented in a formal report. This report should not just present the data, but also provide a qualitative assessment of the results, explaining why certain outcomes were achieved and identifying any areas for improvement.

In the absence of RTS 28, Transaction Cost Analysis transitions from a supplementary tool to a core pillar of a firm’s best execution evidence.

The review process should be designed to answer key questions, such as:

Are our chosen execution venues and brokers consistently delivering high-quality outcomes?
Are our execution algorithms performing as expected?
Are there any patterns of poor performance that need to be investigated?
How do our execution costs compare to industry benchmarks?

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Governance and Control

The final component of the framework is a robust governance and control structure. This ensures that the findings of the monitoring and analysis are acted upon. A best execution committee, comprising senior representatives from the front office, compliance, and risk, should meet regularly to review the TCA reports and other monitoring data. This committee should be responsible for:

Approving the firm’s best execution policy.
Reviewing and challenging the firm’s execution arrangements.
Overseeing the performance of execution venues and brokers.
Ensuring that any identified issues are remediated in a timely manner.

The minutes of these meetings are a crucial piece of evidence, demonstrating to the regulator that the firm takes its best execution obligations seriously and has a formal process for overseeing them. This documented governance process effectively replaces the public disclosure function of RTS 28, providing a clear and defensible record of the firm’s commitment to its clients.

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References

Financial Conduct Authority. (2021). PS21/20 ▴ Changes to UK MiFID’s conduct and organisational requirements. London, UK ▴ Financial Conduct Authority.
European Securities and Markets Authority. (2024). ESMA publishes statement on reporting requirements under RTS 28 of MiFID II. Paris, France ▴ ESMA.
DLA Piper. (2024). ESMA publishes statement on reporting requirements under RTS 28 of MiFID II.
PwC. (2021). FCA confirms research and best execution changes to UK MiFID.
Baker McKenzie. (2022). UK ▴ FCA makes changes to MiFID II research rules and removes RTS 27 and RTS 28 best execution reporting.
TRAction Fintech. (2024). RTS 27 and 28 ▴ The 2024 Status of These Reports in UK and EU.
eflow Global. (2021). Best execution and beyond – What’s happening to RTS 27 & 28 post-Brexit?.
FCA Handbook, Conduct of Business Sourcebook (COBS), Chapter 11.2A.

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Reflection

The transition away from RTS 28 marks a maturation of the regulatory landscape. It moves beyond a compliance culture of box-ticking to one that demands genuine, demonstrable accountability. For firms, this presents an opportunity to re-evaluate their entire execution philosophy. The question is no longer “How do we produce this report?” but “How do we build and evidence a truly superior execution process?” The answer lies not in a single piece of technology or a static policy document, but in the creation of a dynamic, intelligent system of monitoring, analysis, and governance.

The tools and data to achieve this are readily available. The defining factor will be a firm’s commitment to integrating them into a coherent and defensible framework that places the client’s best interests at the heart of every execution decision.