The FSA hit with a vengeance when it fined three big name firms a total of £4.2m for transaction reporting failures. It will be recalled that Barclays suffered a penalty of £2.45m last August for similar failings.
Interestingly, in all these cases, including Barclays, there was an inability to report the correct transaction times as a result of moves between GMT and BST, although this is probably of relatively lesser importance than the non-reporting of transactions e.g. 30 million in the case of Credit Suisse. Common to the three cases was a failure of systems and controls – either a failure to ensure that other parties were indeed transaction reporting or a failure to escalate identified problems to senior management.
As a reminder, SUP 17.1.4 places an obligation on firms to report transactions in any ‘financial instrument’ (a term which covers shares, bonds, futures etc.) that is tradeable on a regulated or prescribed market. Firms should note, of course, that it doesn’t matter where the transaction was actually carried out; all that matters is that the financial instrument can be traded on regulated/prescribed markets.
In addition, the FSA requires reporting of OTC derivatives as well in the circumstances set out in SUP 17.1.4R(2). Note that these are FSA super-equivalent requirements; MiFID only refers to financial instruments admitted to trading on a regulated market. Reference should also be made to the September TRUP (see previous Regulatory Roundups and ‘The TRUP’ link) which gives further guidance.
Many (portfolio management) firms, of course, make use of SUP 17.2.2G which allows them to rely on the other party (typically the broker) to make the report.
Although these were big names, these fines send out a message to all firms that are subject to transaction reporting requirements, regardless of size or business, that the FSA takes such reporting seriously and firms may wish to review their current procedures in the light of the Final Notices.
Firms that rely on SUP 17.2.2G should ensure that they do have ‘reasonable grounds’ to rely on the other party – see page 12 of TRUP for suggestions. For those firms with a low risk appetite thought could be given to requesting appropriate confirmation from their brokers.