Financial firms are facing a critical blind spot: transaction reports that pass validation checks even though they’re full of hidden mistakes. The risk? Regulatory breaches, fines, and reputational harm.

Following the G20 reforms after the 2008 meltdown, financial institutions have invested heavily in infrastructure to make sure derivatives are reported on time, in the correct format. But a hidden menace persists: “valid but wrong” reporting, where submissions pass validation checks even though they include inaccurate or misleading information.

This silent risk undermines regulatory oversight. Reports may appear correct but mislead regulators, who rely on this data to monitor systemic risk. Here, we explore what “valid but wrong” reporting means, why it’s so dangerous, how regulators are responding, and what firms must do to safeguard accuracy.

What is valid but wrong reporting?

“Valid but wrong” reporting refers to a transaction report that meets all the technical validation rules – like formatting and schema compliance – but contains factually incorrect or misleading information. Trade Repositories (TRs) typically validate a report’s structural integrity rather than how accurate it is, which means mistakes can slip through the net. As things stand, these discrepancies often only surface during regulatory inquiries or audits.

Take this as an example: a trade price could be reported as “100” instead of “10.0”, which would materially inflate notional exposure, and distort the regulator’s view of market risk. Similarly, counterparties reporting the same trade may use different notations, one in monetary terms, the other in basis points, which would lead to mismatches.

What makes it a “silent” risk?

Without automatic rejections, these sorts of errors frequently go unnoticed. Over time, flawed data accumulates quietly in trade repositories, embedding inaccuracies into datasets that regulators depend on to monitor systemic risk. Ultimately, this weakens the system’s ability to detect emerging threats – as seen in the lead-up to the 2008 global financial crisis.

It’s like basing a medical diagnosis on flawed test results: if the data’s wrong, the diagnosis and treatment will be too. That’s why accurate reporting is essential for a healthy financial system.

The consequences of getting it wrong

In short, it can be serious. Undetected errors can lead to costly remediation, regulatory fines, and reputational damage. Regulators are holding firms – and their senior management – accountable. Poor data quality directly undermines regulatory objectives and makes it harder to detect market abuse or systemic risk.

Timeliness, completeness, and accuracy form the core pillars of regulatory reporting. While the first two have seen measurable progress, accuracy remains a persistent challenge, prompting growing concern among global regulators. This was evident in the US’ Commodity Futures Trading Commission’s (CFTCs) strongly worded statement from September 2023 – following an enforcement action against top-tier banks – resulting in $53 million in penalties for failures.

Following the UK & EU EMIR Refit implementations, both the Financial Conduct Authority (FCA) and European Securities and Markets Authority (ESMA) highlighted persistent issues – like missing valuations, abnormal maturity dates, and failures to uplift reports to comply with new standards – underscoring the need for stronger change management and reconciliation practices.

Root causes: It’s not just the tech

The root causes of inaccurate reporting are multifaceted. While poor source data is a common culprit, system limitations, software defects, flawed mappings, regulatory misinterpretations, inadequate change management, and human errors all play their part.

Addressing accuracy requires a coordinated approach across technology, operations, and compliance teams.

How regulators are responding

Regulators are upping their scrutiny. They’re investing in advanced analytics to spot anomalies, coordinating across jurisdictions, and mandating stronger quality controls. The message is clear: accurate reporting is non-negotiable.

With that in mind, new requirements are being introduced, such as:

  • Global standards, like ISO 20022, UTI, and UPI.
  • Impact assessments and robust regression testing.
  • Economic term reconciliations.
  • Field-level mapping audits.
  • Data lineage tracking.

Notably, EMIR Phase 2 (2026) is introducing more than 60 new reconcilable fields, including a ‘Valuation Reconciliation Status’ for reconciling valuations. These additions will help regulators detect mismatches across counterparties and improve data integrity.

Best practices for getting it right

Firms must embed accuracy into reporting DNA. Proven strategies include:

  • Strong data governance frameworks.
  • Regular economic reconciliations between front-office and reporting data.
  • AI-enabled validation and anomaly detection.
  • Continuous training on evolving regulatory interpretations.
  • Clear ownership and accountability.
  • Periodic independent reviews.

It’s also important to recognize that external support exists. Several independent vendors offer tools to assess reporting accuracy, beyond basic validations. These services apply diagnostic testing and benchmarking to uncover hidden inaccuracies. In today’s environment, leveraging these sorts of tools adds assurance, and helps firms stay ahead of regulatory expectations.

At Capgemini, we’ve invested in innovative solutions to help firms proactively address inaccuracies:

  • Data lineage plugin that reverse-engineers legacy code into plain English.
  • AI RegBot for automated regulatory interpretations.
  • Predictive mapping tool for intelligent, context-driven field mapping.

These tools help firms proactively spot and fix reporting mistakes before they escalate into regulatory issues.

Final thoughts: From compliance to accuracy

The CFTC’s September 2025 Enforcement Sprint showed the value of proactive compliance. Firms that self-identified and disclosed long-standing issues benefited from reduced penalties. This proves that predictability and proactiveness, just like in today’s geo-politics, carry a good premium in the regulatory landscape.

For participants in G20 derivatives markets, the mandate is simple: get it right or risk being called out. In a world where data drives regulatory oversight, accuracy isn’t just a compliance box to tick – it’s a competitive advantage.