EUROPE - European brokers should be responsible for reporting the execution of any transaction made on behalf of asset managers, the UK's Investment Management Association (IMA) has argued in a submission on the revised Markets in Financial Instruments Directive (MiFID).

Responding to a call for evidence on transaction reporting and proposed changes to OTC derivatives guidelines launched by the European Securities and Markets Authority (ESMA), the IMA said it recognised the "importance" for competent authorities receiving all the necessary information in regards to financial trades completed.

However, the association made a number of recommendations over the changes brought about by a revised MiFID.

First, the IMA insisted that, in order to ensure all relevant transaction details are reported, the last "link" in the transaction chain in the EU should be in charge of reporting the trades.

"Given that orders can easily be transmitted outside the EU, the simplest solution is to place the responsibility for transaction reporting on the last link in the chain which is still caught by the rules," the association said.

According to the IMA, the last "link" in the transaction chain could either refer to the investment firm or broker that executes the order against the market, or the investment firm that chooses to transmit the order outside the EU.

The IMA added: "While some states require the initiator of the transaction to report in those instances where the order is transmitted outside the EU, this is not adequate, as numerous orders are initiated by unregulated firms or individuals. Thus, the information required by the competent authority would be lost."

Under MiFID II proposals, post-trade reporting requirements will be left to the competent authority of the home or host state of the firm and not to the competent authority of the regulated market on which the instrument is traded.

"Partly as a result of the above," the IMA went on to say, "it should be clear that when an investment firm passes an order to another investment firm for them to execute the transaction, then the responsibility for transaction reporting will fall on the last EU-investment firm in the chain, generally that which executes the transaction."

The Association of British Insurers (ABI) also called on ESMA to clarify the way brokers will be supervised under the revised MiFID.

The current guidance suggests that the process of checking whether a broker is a MiFID investment firm subject to MiFID transaction reporting requirements on an annual basis will allow the investment manager to have 'reasonable grounds' that the broker is compliant.

However, the ABI stressed that, while it is "reasonable" to check the registration of FSA registered brokers/counterparties against the FSA register in the UK, for other European brokers that are not FSA-registered, such a check was "not simple to achieve".

The ABI therefore said it would "appreciate" guidance as to what would be regarded as adequate control to ensure the investment manager had 'reasonable grounds' to believe the non-FSA registered broker performed MiFID transaction reporting it could be reliant upon to discharge its own obligations.

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