Over one thousand investment firms tripped up by MiFID II transaction reporting in first year

8 April 2019

Transaction reporting

Research by global financial services regulatory consultancy Bovill found that 1,335 notifications of inaccurate transaction reporting were submitted to the FCA in 2018, the first year of MiFID II. The findings are the first snapshot of how firms are adjusting to its more complex reporting regime.

These figures only represent firms that noticed they were in breach of the new, more advanced requirements. As such, sector specialists believe many thousands more firms are likely submitting inaccurate reports, but aren’t catching them and informing the regulator. Bovill warns that the recent high-profile fines against UBS and Goldman Sachs for transaction reporting breaches are a sign the FCA will clamp down on firms that continue to be non-compliant years after MiFID II’s implementation.

Notifications will generally have been made by firms that successfully managed to get MiFID II-ready during the transition period and had error detection controls in place within the first year of the new regime. Many firms struggled to do this due to the regulation’s complexity. The FCA has so far given leeway to non-compliant firms, recognising the difficulties of adjusting to the new regime.

However, given that even MiFID II-ready firms are struggling to submit correct reports, Bovill believes that that the many firms that still aren’t MiFID II-ready – or that mistakenly believe they are – are almost certainly making reporting errors unawares. The FCA has become increasingly vocal in its complaints that some companies are failing to catch MiFID I breaches. Firms struggling to comply with the more basic regime are very likely to be making commonplace errors and failing to catch them under MiFID II.

Damon Batten, managing consultant at Bovill, said:

“These results show a substantial number of the 6,000 UK firms executing transaction reports are falling foul of the more complex requirements of MiFID II. And these are just the firms that had done their homework and were ready in time for the new regime. As the recent multimillion-pound fines against UBS and Goldman Sachs go to show, many firms didn’t have effective controls in place to catch more basic MiFID I errors. Given how common reporting errors are among firms that are MiFID II-ready, companies that haven’t detected any should be wary. Unless they’re confident it’s because they have Rolls-Royce processes in place, it’s more likely a sign those processes aren’t fit for purpose.”

“The regulator won’t come down hard on firms for making reporting errors, but they will penalise firms that can’t identify and report them promptly. Proactivity is the watchword: if firms are taking it upon themselves to catch and fix their own faults, the regulator will consider that all is in order.

“As such, it isn’t the end of the world for firms that might have been unwittingly breaching the regulations. But time is of the essence for them to fix things and demonstrate they can clear up their own messes and prevent them from happening again. The FCA’s goodwill will be thin for firms still unable to catch breaches by MiFID II’s second birthday. The Goldman Sachs and UBS fines are as clear a warning shot as any of the potential consequences for firms that don’t take action now.”

Also covered in CityWire.

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