Following on the heels of the £4.2m fine imposed on three big name firms for transaction reporting failures (see Regulatory Roundup No 12) the FSA released details of a further firm – CommerzbankAG – to be fined for transaction shortcomings. What is interesting about the latest fine (£595,000) is that it is imposed upon an incoming EEA branch passported into the UK. Commerzbank is actually regulated by the BaFin so the FSA could not take any action in respect of possible systems and controls failures as this is the responsibility of the home state regulator.
The transaction reporting got off to a bad start in the run up to MiFID implementation when the classic scenario of one project team assuming that the other project team was ‘doing something’ arose. Add to this a lack of formal transaction monitoring for a year and incorrect filtering by the firm’s transaction reporting system could only mean that one day there would be ‘a problem’. The Final Notice shows that the firm failed to report 10% of transactions in the two year period in question and inaccurately reported 84% of reportable transactions: adding the two together means that only 6% of reportable transactions were reported in keeping with regulatory requirements.
Firms that have an obligation to transaction report may wish to give consideration to increasing the frequency and/or sampling size in their compliance monitoring. Note that not for the first time the FSA has mentioned that it is willing to provide firms with sample reports so that firms can check those transaction reports against their own records.
None of the cases to date are against any firms that are simply providing a service of portfolio management and so take advantage of SUP 17.2.2G which allows them to rely on the other party (typically the broker) to make the report. In the absence of any further comments etc. from the FSA such firms can only look to the guidance given on page 12 of TRUP and to make sure that they can justify the ‘reasonable grounds’ requirement.
In the last Regulatory Roundup we also suggested that firms with a low risk appetite could consider requesting appropriate confirmation from their brokers. Having said that, we are aware from some firms that in the current regulatory environment such requests are not being met. Other approaches we have heard include firms undertaking to do their own transaction reporting – reporting 100% of everything as a precaution.
We would be interested to hear any views that firms may have on this topic, including whether you feel that enough is being done by the FSA to explain what (further) actions need be taken by firms to ensure that their transaction reporting obligations are met. Any comments received would, of course, be treated in confidence although if there was a consensus response we would be happy to include it/them in a future Regulatory Roundup.