Who Is Ultimately Responsible for RTS 22 and RTS 24 Compliance?

Concept

The Locus of Obligation in Financial Reporting

In the intricate machinery of European financial markets, the accountability for compliance with Regulatory Technical Standards (RTS) 22 and RTS 24 is not vested in a single individual or role. Instead, it manifests as a distributed, systemic responsibility, embedded within the operational DNA of participating firms. The core of the matter resides in identifying the specific functions and legal entities that bear the reporting and data maintenance duties under the Markets in Financial Instruments Regulation (MiFIR). This framework is designed to ensure that for every transaction and order, a clear line of accountability can be traced back to a designated entity, providing regulators with the transparency needed to monitor market integrity.

RTS 22, which governs transaction reporting under Article 26 of MiFIR, places the onus squarely on the investment firm that executes a transaction. This principle extends through complex execution chains, where the obligation to report, or to provide the necessary data for reporting, is carefully delineated. Recent clarifications from the European Securities and Markets Authority (ESMA) have focused on refining the rules for identifying the “entity subject to the reporting obligation,” ensuring that ambiguity is minimized, particularly in scenarios involving third-party or delegated reporting arrangements. The system is engineered to prevent the diffusion of responsibility, making certain that a specific legal entity is answerable for the accuracy and timeliness of each transaction report submitted to the competent authorities.

Accountability for RTS 22 and RTS 24 is a distributed, systemic responsibility embedded within the operational frameworks of investment firms and trading venues.

Conversely, RTS 24, which details the requirements for order book data maintenance under Article 25 of MiFIR, assigns responsibility to a different set of market actors. This standard obligates trading venues ▴ such as Regulated Markets and Multilateral Trading Facilities (MTFs) ▴ to record and maintain a comprehensive and accurate history of all orders advertised through their systems. Their role is to provide a complete audit trail of market liquidity and interest, which is fundamental for regulatory investigations into market abuse or disorderly trading conditions. The responsibility here is less about the individual transaction and more about the integrity of the market’s price formation mechanism itself.

A System of Interlocking Duties

The regulatory structure creates a system of interlocking and mutually reinforcing duties. While the investment firm is responsible for reporting the “what” and “who” of a transaction under RTS 22, the trading venue is responsible for maintaining the context ▴ the “where” and “when” ▴ of the orders that may have led to that transaction under RTS 24. This bifurcation of duties ensures that regulators have multiple, corroborating data sources to reconstruct market events with high fidelity.

The ultimate responsibility, therefore, is a composite of the precise execution of these distinct, yet connected, obligations by all mandated parties. The failure of one party to fulfill its duty can impair the value of the data provided by others, highlighting the interconnected nature of the compliance ecosystem.

Strategy

Establishing a Governance Framework for Reporting Integrity

A strategic approach to RTS 22 and RTS 24 compliance transcends mere data submission; it involves the establishment of a robust internal governance framework that embeds accountability throughout the organization. For investment firms, this means creating clear lines of ownership for transaction reporting accuracy, from the front-office trading desk to the back-office operations and compliance teams. The strategy must address the entire reporting lifecycle, including data capture, enrichment, validation, submission, and reconciliation.

A critical component of this strategy is the formal delegation of reporting duties, whether to a third-party Approved Reporting Mechanism (ARM) or within a corporate group. Such delegations do not absolve the investment firm of its ultimate responsibility; they necessitate rigorous oversight, contractual clarity, and ongoing due diligence of the delegate’s performance.

For trading venues, the strategic focus is on the resilience and integrity of their data storage and retrieval systems. Their compliance strategy must ensure that order book data is captured in a standardized format, is readily accessible, and can be accurately reconstructed upon regulatory request. This involves significant investment in technology and operational procedures to handle vast amounts of data while maintaining synchronization with a precise, auditable timescale. The venue’s strategy must also account for changes in market structure and technology, such as the rise of Distributed Ledger Technology (DLT) instruments, which introduce new complexities in data recording.

A robust compliance strategy involves creating clear lines of ownership and accountability for data accuracy throughout the entire reporting lifecycle.

Comparative Responsibilities under RTS 22 and RTS 24

Understanding the distinct responsibilities under each standard is fundamental to a coherent compliance strategy. The following table delineates the primary obligations and the entities accountable for them.

The Role of Technology in a Compliance Strategy

Technology is the lynchpin of any effective RTS 22 and RTS 24 compliance strategy. For investment firms, this means implementing sophisticated transaction reporting systems capable of handling complex data mapping, validation rules, and the generation and transmission of unique identifiers. These systems must be adaptable to evolving regulatory requirements, such as the introduction of new fields or changes to reporting logic.

For trading venues, the technological challenge lies in building and maintaining high-capacity, low-latency systems for order data capture and storage. The increasing focus on clock synchronization demands a robust infrastructure to ensure all reportable events are timestamped with a high degree of precision relative to Coordinated Universal Time (UTC).

Execution

Operationalizing Responsibility in Reporting Chains

In practice, executing compliance obligations requires a granular understanding of how responsibility is assigned in different trading scenarios. The principle of “executing firm reports” is the foundation, but its application varies. For instance, in a chain of orders, where a client order is passed through multiple brokers, ESMA has clarified that the firm that faces the market or executes the order is typically responsible for the report.

To facilitate this, the concept of a “Chain Identifier” has been proposed, a unique code that must be transmitted down the execution chain to the ultimate reporting entity. The operational challenge is to ensure this identifier is passed accurately and without delay between all intermediaries.

For over-the-counter (OTC) transactions, which occur off-venue, the responsibility for generating a unique Transaction Identification Code (TIC) is assigned to the market-facing seller. This firm must then disseminate the code to the buyer, ensuring both parties can link their respective reports of the transaction. This places a direct operational burden on the seller to have a system in place for TIC generation and communication, which must be factored into their post-trade processing workflow.

Executing compliance obligations requires a granular understanding of how responsibility is assigned across different and complex trading scenarios.

Identifier Generation and Dissemination Responsibilities

The operational execution of RTS 22 is increasingly reliant on a system of unique identifiers. The responsibility for generating and sharing these codes is a critical aspect of compliance. The table below outlines the key identifiers and the entities accountable for their management.

Oversight and the Role of Approved Reporting Mechanisms

Many investment firms choose to delegate the operational aspects of transaction reporting to an ARM. This is a permissible and common practice under MiFIR. However, it is crucial to understand that delegation does not transfer ultimate responsibility. The investment firm remains fully accountable to the regulator for the completeness, accuracy, and timeliness of the reports submitted on its behalf.

Effective execution of this delegated model requires:

• Rigorous Due Diligence ▴ Selecting an ARM with a proven track record, robust technological infrastructure, and a deep understanding of the regulatory requirements.
• Clear Service Level Agreements (SLAs) ▴ The contract with the ARM must clearly define the scope of services, performance expectations, and responsibilities of each party.
• Ongoing Oversight and Reconciliation ▴ The firm must have a process to regularly reconcile the data sent to the ARM with the data submitted by the ARM to the regulator. This includes reviewing acknowledgment (ACK) and negative acknowledgment (NACK) messages to identify and remediate reporting errors promptly.
• Contingency Planning ▴ Firms must have a documented plan for what to do if their ARM experiences an outage or fails to meet its obligations.

The ultimate responsibility for compliance rests on a foundation of robust systems, clear governance, and a proactive approach to managing the complexities of the reporting process, whether handled in-house or through a delegated arrangement.

Reflection

From Obligation to Operational Intelligence

The framework of RTS 22 and RTS 24, while prescriptive in its nature, offers more than a set of compliance hurdles. It provides the schematic for a data-driven nervous system within a financial institution. The processes and systems built to satisfy these reporting obligations can be repurposed to generate powerful internal insights. The ability to accurately track and report every transaction and order is the foundation for sophisticated transaction cost analysis (TCA), best execution monitoring, and algorithmic performance evaluation.

Viewing compliance not as a cost center, but as an investment in a high-fidelity data infrastructure, reframes the entire endeavor. The question then evolves from “Who is responsible for this report?” to “How can the intelligence from our reporting framework enhance our market-facing decisions and risk management posture?” The ultimate mastery of these regulations lies in transforming the mandated data flows into a source of durable, strategic advantage.