/>iThe Financial Conduct Authority has imposed a fine of £34,344,700 on Goldman Sachs International (“GSI”) for breaches of transaction reporting obligations. The fine comes just over a week after the FCA imposed a £27,599,400 fine against UBS (which we considered in an earlier blog post).
Both fines result from breaches of obligations imposed by MiFID (the Markets in Financial Instruments Directive (2004/39/EC), as well as a breach of Principle 3 of the FCA’s Principles of Business, under which firms must take reasonable care to organize and control their affairs responsibly and effectively, with adequate risk management systems.
Goldman Sachs Fine
The FCA found that between November 2007 to March 2017, GSI:
- Failed to accurately report 204.1 million transactions;
- Failed to report 9.5 million transactions; and
- Erroneously reported 6.6 million transactions (when the transactions either did not occur or were not reportable).
The 220.2 million impacted reports were equivalent to around 15% of all the 1.5 billion reports submitted by GSI during this period.
The FCA and GSI reached settlement at an early stage and therefore a 30% discount (stage 1) applied. Without the discount, the FCA would have imposed a £49,063,900 fine.
In calculating the fine, the FCA took into account the volume of inaccurate and erroneous reports, as well as the extended period of the breaches.
The FCA considered that the support it provided in relation to transaction reporting requirements, through the FCA’s transaction reporting user pack, transaction reporting forums and “Market Watch” newsletter on market conduct and transaction reporting errors was an aggravating factor in the breach. Various mitigating factors were relevant, including the significant resources committed by GSI during the period, as well as their full co-operation with the FCA, and GSI’s self-identification and notification of most of the errors.
There were no findings of fault associated with these failures against GSI’s underlying clients.
The importance of transaction reporting
The FCA uses information from transaction reports to meet its objective to both protect and enhance the integrity of the UK financial system. Reports assist the FCA in identifying situations of potential market abuse, insider dealing, market manipulation and related financial crime. The FCA also uses the reports to undertake market surveillance to identify risks to market confidence. It therefore regards the accuracy of transaction reporting as very important and is taking a strict approach to failures by large firms to live up to expectations in this area. In calculating the appropriate penalty, the FCA stated that it “paid particular attention to the importance that that authority attaches to transaction reporting.”
Since publishing the fine and decision notice, the FCA has stated that they expect all firms to “take this opportunity to ensure they can fully detail their activity and are regularly checking their systems so any problems are detected and remedied promptly”.
In light of the UBS and GSI fines, the importance of transaction reporting cannot be understated. Whilst both fines arise from MiFID reporting failures, they provide a useful guide for how other transaction reporting failures under current legislation (including under the European Market Infrastructure Regulation (EMIR) and MiFID II) might be treated. This is particularly of interest on the context of EMIR. EMIR contains a derivatives reporting requirement that applies to most derivatives market participants including many industry sectors that are not subject to MiFID compliance (such as pension schemes and most corporates). Many such participants have relied on their counterparty bank to submit their trade reports promptly and accurately. Therefore if such trades have not been reported in accordance with EMIR, there is a risk of non-compliance and FCA sanction.
All entities should be aware of the FCA’s focus on transaction reporting under MiFID II and EMIR. It is imperative that market participants have responsible and effective control and organisation of their risk management and transaction reporting systems. This would include making sure that if a bank is reporting on an entity’s behalf, that an appropriate delegated reporting agreement is in place.
