Suspension of RTS 27 Reports Confirmed but RTS 28 Remains Due

Investment firms are no longer required to publish the RTS 27 quarterly reports in 2021. Confirmation that a two-year suspension of publishing quarterly RTS 27 reports has already commenced and has been received from the European Commission.

quinn perrott of tRAction — Quinn Perrott, Co-CEO of TRAction

Confusion arose when the enforcement date of the RTS 27 suspension seemed to be inconsistent with the entry into force of the Quick-Fix Directive published on 26 February 2021. Responding to industry enquiry, the European Commission confirmed the effective date of the two-year suspension.

“The legislative aim is to suspend the best Execution reports for two years as of the day following the entry into force of the amending directive… The consequence of this is that the reports would no longer need to be published in 2021. Member States’ delegations are aware of this legislative aim and have been informed accordingly.”

Therefore, the two-year suspension of publishing quarterly best execution reports has been applicable since 27 February 2021 and will continue until 28 February 2023. Whilst investment firms no longer have an obligation to publish the RTS 27 reports, completing the reports internally remains of value, particularly as it addresses the continuing requirement to monitor:

It also encourages investment firms to rectify any deficiencies that the monitoring may expose.

The FCA’s Statement

The FCA has also announced that it will not take action against firms who do not produce RTS 27 for the rest of 2021. It is preparing to review the RTS 27 reporting obligation, understanding the concerns that the reports fail to provide any significant value to the market and to consumers in addition to the burden involved in producing these reports.

This supervisory flexibility forms part of FCA’s attempt to level the playing field between UK and EU investment firms. As the current suspension in the EU would normally discharge their obligation in the UK by producing reports for the firm as a whole. It is expected that the FCA will have concluded their policy with regard to the future of these reports by the end of 2021.

RTS 28 Reminder

RTS 28 is still in force and investment firms must publish their report by 30 April 2021. Investment firms are required to summarise and publish their top five execution venues in terms of trading volume and information on the quality of execution obtained for each class of their financial instruments. Although often grouped together with RTS 27, for now, they need to be clearly distinguished.

Why Are Rts 27 and 28 Reports So Hard?

Preparation of RTS 27 and RTS 28 reports can be difficult. The root cause of the complexity involved in these reports is ESMA’s guidance on RTS 27 which likens CFD providers’ platforms and services to that of Trading Venues. As a result, CFD providers are expected to collect, collate and report on information, which they do not have access to and from a perspective which they do not operate in.

Additionally, there is an absence of clarity and subsequent incongruity in the formatting and structure of RTS 27 and RTS 28 reports. For example, the regulations specify that the reports are to be submitted in a ‘machine readable’ format. As computers can read various file formats such as CSV, XLS or PDF, firms are reporting in vastly varied formats. This makes it problematic for investors to interpret and develop reliable comparisons on many components of the reports.

The Future of RTS 27 and RTS 28

As pointed out in a previous article, even ESMA noted that there currently appears to be little evidence on the efficacy of best execution reporting including RTS 27 and RTS 28. ESMA noted the distinct lack of engagement by investors with these reports as providing further indication that very little if any, meaningful comparisons or conclusions are being drawn from the reports.

In 2020, ESMA considered suspending best execution requirements, which we have now seen come into effect for RTS 27 under the Quick-Fix Directive, implying that these measures would have no effect on consumer protection as investors are not reading the reports anyway. The benefit to the cessation of these reports would mean investment firms are able to reallocate the resources and costs expended on the production of the reports to more beneficial avenues within the firm.

As to whether RTS 28 will remain in the future, we continue to await the European Commission’s comprehensive MiFID II review proposal this year. Nevertheless, it is an important reminder that CFD providers should continue to comply with all the best execution requirements excluding the publishing of RTS 27 in the meantime.

Quinn Perrott is Co-CEO and Founder of TRAction.