Lessons learnt from UBS and Goldman Sachs transaction reporting failings

UBS and Goldman Sachs have both been hit with fines for transaction reporting failings, with UBS having to pay nearly £27.6m and Goldman Sachs being hit for £34.3m. Both penalties could have been higher without the 30% discount that was applied to reward the firms for committing to resolving the issues quickly. The fact that both firms self-identified a large part of their respective issues will also no doubt have helped. The fines stand as a timely reminder of the importance of getting transaction reporting right.

Transaction reports are a vital tool for the FCA to have effective market oversight. The reports provide valuable information that can identify potential market abuse, insider dealing and market manipulation. Monitoring the effectiveness of transaction reporting processes and assessing the completeness and accuracy of reports has always been something firms are expected to do. Effective transaction reporting processes, systems and controls are a useful way for firms to demonstrate that they take the fight against market abuse seriously.

In making their MiFID II preparations, many firms identified issues with MiFID I transaction reporting that led to an influx of breach reports to the FCA. We can only assume that both UBS and Goldman Sachs found themselves in that position.

The breaches at UBS had been occurring over a nine-and-a-half-year period from November 2007, resulting in 3.65m transaction reports not being made with a further 83m transactions incorrectly reported and 49.1m reported when they shouldn’t have been. The total number of transaction reports impacted was 135.8m, with the firm self-identifying issues with 85% of those reports.

At Goldman Sachs, the issues spanned a period of ten years from November 2007, resulting in 9.5 million transactions not being reported, 204m transactions being incorrectly reported, and 6.6m transactions being reported when they shouldn’t have been. The total number of transaction reports impacted was just over 220m with 11 different issues accounting for the vast majority of the problems.

Transaction reporting failings

While the volume of transactions is likely to have been a factor in determining the fine imposed, the FCA will also have considered the time period that the breaches covered. It’s particularly concerning that the firms didn’t have adequate systems and controls in place to make sure that their static data and the content of their transaction reports was complete and accurate. Another consideration the FCA will have had when assessing the severity of the issues at UBS is the fact that they were also fined in 2005 for transaction reporting failings. Some might say UBS didn’t heed that warning.

As well as the obligations that firms have always had to make sure reports are correctly made, MiFIR includes a specific requirement. It says that “Investment firms must…. take reasonable steps to verify the completeness, accuracy and timeliness of the transaction reports which were submitted on their behalf.” In other words, reconciliations of your transaction reporting data are now a regulatory requirement and taking no action is not an option. Spotting errors and reporting them to the FCA yourself is always better than leaving errors to accumulate and possibly be spotted by the FCA.

As the transaction reporting failings fines illustrate, having a good transaction reporting reconciliation process is a money-saver – both in terms of reducing the risk of fines and regulatory sanction, as well as avoiding the need for costly resource to be used for back reporting and remediation. Whichever way you do it, implementing a reconciliation solution is a requirement and not an option so make sure you have it in hand.

How we can help

Many firms lack the time and money to build their own solutions. At Bovill, our philosophy rests on two pillars:

  1. Comprehensive health check
  2. Periodic reconciliations and testing

Our health check will help find any structural weaknesses in your transaction reporting process, while the reconciliations and testing will make sure your actual reports are complete and accurate. Get in touch to find out how we can help you prevent transaction reporting failings.

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