Today, 22nd April 2015 saw Merrill Lynch International landed with a fine of £13,285,900, the highest imposed for transaction reporting failures to date. The size of the fine reflects the fact they had been privately warned in 2002 and had a £150,000 fine in 2006 but continued not to address the situation. The FCA has also increased the cost of each line of incorrect or non-reported data by 50p to £1.50 because “past fines have not been high enough to achieve credible deterrence”.
The FCA’s rules on transaction reporting are based on the EU Markets in Financial Instrument Directive (MiFID), which relevant firms had to implement from November 2007; Merrill Lynch is a relevant firm.
The FCA has fined 11 other relevant firms for transaction reporting breaches: Deutsche Bank, Barclays, Credit Suisse, Instinet, Getco, Commerzbank, Société Générale, City Index, James Sharp & Co, Plus500UK and RBS
MiFID II will take effect from 3 January 2017 and will mean enhanced regulatory reporting – additional instruments will need to be reported to the FCA and other authorities. That is just one of the areas MiFID II will impact.
It’s easy to sit there and think we’re ok we have until 2017 to address the enhanced requirements – I have 2 two questions for you.
- How sure are you that your current transaction reporting and other MiFID criteria meet the current MiFID requirements?
- In hindsight would you have started to address all the MiFID requirements sooner than you did prior to November 2007?
The change in regulator from the FSA to the FCA can be compared to experiencing the weather in Chesterfield (apparently the least windy area of the UK) and then experiencing the weather in North Carolina, which holds the number one position for being hit by hurricanes.
The Partners in FSTP were all working with relevant firms at the time MiFID requirements were known, some firms prepared well in advance of November 2007, others left it until the last minute and a number of firms because they were used to living in the clement weather of the UK didn’t pay heed to the severity of the warnings for a change in the weather and so while others were buttoning down the hatches they were making hay while the sun shone – but everyone knows the sun doesn’t shine for that long in the UK – ok give me license I’m just sticking with the analogy!
In terms of the analogy we now live in North Carolina, hurricane MiFID II is getting ready to blow through. For those that know the benefits of buttoning down those hatches long before the hurricane arrives and have already started to look at the requirements for MiFID 11 they will “weather the storm” and will have little or no damage to deal with. For those that leave it until the last minute, they will need to pay more for reinforcements because of the scarcity of material and for those that believe they are still living in the UK and hurricane MiFID II will miss them all together – Today Merrill Lynch paid a high price and will suffer the ramifications of not buttoning down the hatches after wind rattled their windows in 2002 and a mild storm hit them in 2006.
If you don’t prepare for a hurricane, and it hits, the financial consequences of having to build a stronger, re-enforced building in tight timescales as well as clearing up the debris far outweighs the cost of buttoning down the hatches or paying for reinforcements beforehand!