In twin announcements this month, the FCA has fined Goldman Sachs and UBS fined £34.3 million and £27.6 million respectively for MiFID I Transaction Reporting failures. The two investment banks are the 13th and 14th major financial firms fined by the UK financial supervisor since 2009 for transaction reporting problems.
According to the FCA, both banks failed to submit reports in a Complete, Accurate and Timely manner (CAT) under MiFID I. Replaced by MiFID II on January 2018, MiFID I was in effect from November 5th, 2007 until January 2nd 2018. Regulators used data from transaction reports of which focused on exchange traded transactions to help them monitor for market abuse.
The FCA stated that during the nearly 10 year period between November 2007 and March 2017, Goldman Sachs had CAT failures related to 213.6 million transactions while another 6.6 million were submitted despite not being reportable (FCA statement). During the same period, UBS erroneously submitted 49.1 million non-reportable transactions with another 135.8 million having errors in their reports (FCA statement).
Proper systems for MIFID II
At the heart of the problem for both banks was what the FCA described as failures in the process used to maintain counterparty reference data, change management and testing. Failing to have proper systems in place led reports to have systematic problems with how transaction data was collated and used to create and submit information to the FCA.
Since January 2018, MiFID II has substantially increased the scope of products and data fields falling under Transaction Reporting requirements. Therefore, it has become more important to have robust systems in place to handle the new regulation as the FCA has already begun to review 2018 reports for data accuracy and market abuse monitoring (more on this).
In the FCA's Final Notice document against Goldman Sachs (link), they highlighted a number of infractions that are also very related to MiFID II and quite easy for the FCA to catch. As example is what is called " The Incorrect Dealing Capacity Issue".
In this case, Goldman failed to correctly enter its capacity as either Principal or Agent. When reporting as Principal, a financial firm needs to appear as one of the Counterparties to the trade. However, as an Agent, they are neither the Buyer or Seller. Therefore, if an investment firm incorrectly defines their Trading Capacity, this is fairly easy for the FCA or other regulators to catch.
To assist financial firms, Cappitech has published a Best Practices Guide (link) to cover issues companies have faced handling MiFID II compliance and how to fix them. Cappitech’s recently launched Insights Product (learn more) also provides a visual display for CAT monitoring of their Transaction Report submissions to easily spot errors and late submissions.