In a notable effort to maintain market integrity, the Financial Conduct Authority (“FCA”) has imposed its first penalty for transaction reporting failures under the UK Markets in Financial Instruments Regulation (“MiFIR”). The FCA has penalised multiple firms for transaction reporting failures, but this marks the first enforcement action for a breach of these requirements since they were enacted under the MiFIR. Specifically, Infinox Capital Limited (“Infinox”) has been fined £99,200 by the FCA for not submitting 46,053 transaction reports, a breach that increased the risk of undetected market abuse.
The Importance of Accurate Transaction Reporting
MiFIR was introduced to enhance the integrity and efficiency of financial markets by ensuring firms report transactions accurately and in a timely manner, which is crucial for monitoring, detecting and disrupting market abuse. The FCA relies on these reports to maintain the integrity of financial markets. Failing to meet these requirements can lead to significant consequences, including financial penalties, reputational damage, and increased regulatory scrutiny.
FCA’s Enforcement Action
Between October 2022 and March 2023, Infinox failed to submit transaction reports for single-stock contracts for difference (“CFD”) trades executed through one of its corporate brokerage accounts. The FCA independently identified the discrepancy in transaction data submitted by Infinox, despite the firm identifying the issue following a third-party review. Infinox did not proactively report the breach to the FCA, which further compounded the severity of the situation. This failure highlighted significant weaknesses in Infinox’s transaction reporting systems and controls, especially for high-risk investment products. The FCA’s enforcement action underscores the importance of firms submitting accurate and timely transaction reports and promptly bringing any failures to the Regulator’s attention.
Key Takeaways for Financial Firms
The FCA’s fine highlights several critical lessons for financial firms:
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- Essential Accuracy: Transaction reports must be precise and contain all mandatory data fields as required under MiFIR. Even minor discrepancies can lead to regulatory action.
- Timeliness Matters: Firms must submit reports within the required timeframes to avoid compliance breaches. Delays can indicate operational weaknesses and attract scrutiny.
- Robust Compliance Frameworks: Firms should invest in comprehensive compliance systems that include automated reporting solutions, regular audits and staff training.
- Increasing Regulatory Oversight: The FCA’s actions signal a stricter regulatory environment, making it imperative for firms to stay ahead of compliance requirements.
How Firms Can Strengthen Their Compliance
To ensure MiFIR compliance, firms should:
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- Conduct Regular Audits: Internal reviews and external assessments identifies potential gaps before they become regulatory violations.
- Train Employees on Compliance Best Practices: A well-informed team prevents inadvertent reporting mistakes and reinforce a culture of compliance.
- Implement Strong Data Governance Policies: Clear policies for data management and verification help maintain the accuracy and integrity of reports.
- Engage with Regulatory Consultants: Expert guidance assist firms in staying updated on evolving compliance requirements and industry best practices.
Conclusion
This enforcement action underscores the critical need for firms to maintain robust transaction reporting systems and controls. The FCA’s decision to impose a fine, even for a relatively small number of affected reports, highlights the high-risk nature of the products involved and the potential for market abuse. This first fine under MiFIR represents a significant milestone in financial market regulation, reinforcing the importance of compliance with transaction reporting requirements. As a data-driven Regulator, the FCA will continue to monitor market data in real-time, identifying potential misconduct and taking necessary enforcement actions to uphold market integrity.
How can Complyport Help:
Complyport brings over 22 years of expertise in governance, risk and compliance within the UK and EU financial services industry, offering expert support to help firms navigate EMIR, MiFIR and SFTR transaction reporting with confidence. Our services include:
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- Automated Reporting: In collaboration with MAP FinTech, we deliver cutting-edge automation solutions for reporting obligations under EMIR REFIT, MiFIR and SFTR.
- Effective Processing: Powered by the award-winning Polaris technology, our system enhances, validates and submits transaction data in compliance with TR, ARM and NCA requirements.
- Training and Implementation: Our experts provide end-to-end setup support and training to equip your team with the skills to extract and manage compliance-critical data effectively.
- Centralised Monitoring: The Polaris Portal dashboard offers a unified platform to oversee, manage, and control transaction reporting across multiple jurisdictions and regulatory frameworks.
- Comprehensive Solutions: Beyond transaction reporting, we offer advanced technology solutions for compliance across various regulatory regimes, including ASIC, MAS, Canada, FATCA, CRS, DAC6, Best Execution Monitoring, Trade Surveillance, Market Abuse Monitoring, KYC and AML Transaction Monitoring.
