The UK’s Financial Conduct Authority has declined calls from the hedge fund industry to dramatically reduce transaction reporting obligations, instead proposing a more measured approach that will cut costs but maintain regulatory oversight of buy-side investors.
FCA Announces £108 Million in Annual Savings
The Financial Conduct Authority unveiled plans on Friday to streamline transaction reporting rules that currently cost firms £493 million annually to comply with. The proposed changes would save companies more than £108 million per year by eliminating or modifying requirements deemed excessive.
The regulator currently processes approximately 7 billion transaction reports each year under the Markets in Financial Instruments Directive, a framework inherited from EU law when the UK was part of the European Union.
Proposed Changes to Reporting Framework
The FCA’s consultation document outlines several specific reforms. The regulator plans to remove reporting requirements for foreign exchange derivatives trades and eliminate reporting obligations for 6 million instruments that trade exclusively on EU venues.
Additionally, the FCA proposes reducing the correction period for historical reporting errors from five years to three years. The regulator acknowledged that it does not regularly use some of the collected information, creating disproportionate compliance burdens on market participants.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, stated that the agency can “be smarter” by clarifying and streamlining requirements to receive more accurate and complete reports.
Hedge Funds Push for Deeper Cuts
The hedge fund industry has lobbied for more extensive changes that would align UK rules with jurisdictions including the United States and Japan. These countries require only sell-side institutions like investment banks to report transactions, exempting buy-side investors such as hedge funds and asset managers from dual reporting obligations.
The Alternative Investment Management Association and the Managed Funds Association both expressed disappointment that the FCA stopped short of eliminating buy-side reporting entirely.
Adam Jacobs-Dean, global head of markets, governance and innovation at AIMA, said that while the FCA is proposing a significant overhaul with improvements, “the biggest drag on the UK investment management industry’s competitiveness will remain.”
Rob Hailey, head of EMEA government affairs at the Managed Funds Association, called the consultation “a welcome first step” but urged the FCA to go further in eliminating redundant dual-sided transaction reporting requirements.
Why the FCA Maintained Buy-Side Reporting
The regulator defended its decision by pointing to structural differences between the UK market and other major financial centres. The FCA noted that due to the “international nature” of UK markets, more than half of transactions involve UK-based buy-side investors trading with sell-side institutions headquartered outside the country.
Eliminating buy-side reporting would result in a complete loss of oversight for 56% of transactions executed by buy-side firms, according to the FCA. The regulator warned this would materially impact both its own monitoring capabilities and those of the Bank of England, particularly in corporate debt markets.
Long-Term Harmonization Plans
Beyond the immediate proposals, the FCA announced plans to establish a working group examining comprehensive harmonisation across the UK’s three main reporting regimes. This includes the Markets in Financial Instruments Directive, the UK European Market Infrastructure Regulation, and the UK Securities Financing Transactions Regulation.
More than 1,000 companies currently submit transaction reports under at least two of these regimes, with 93 firms caught by all three frameworks. The FCA emphasised that harmonisation efforts would proceed gradually in collaboration with the Treasury and Bank of England to minimise transition costs for firms.
The regulator stated its approach “aims to minimise change costs for firms” through a phased transition towards a more streamlined reporting framework.
What This Means for Market Participants
The consultation represents a balancing act between industry demands for regulatory relief and the FCA’s mandate to maintain market oversight. While the proposed changes will reduce compliance costs, they preserve the regulatory architecture that critics argue puts UK-based investment managers at a competitive disadvantage compared to peers in other major financial centres.
The FCA is now seeking feedback on its proposals before finalising the new reporting framework.
