FCA Issues First Transaction Reporting Fine under UK MIFIR

Recent Fine - are there more to come?

On 29^th January the FCA announced that a regulated entity was being fined £99,200 for failing to submit 46,053 transaction reports which risked market abuse going undetected (link to FCA article). This was for the period between 1 October 2022 and 31 March 2023.  The firm agreed to resolve the case at an early stage and therefore qualified for a 30% discount on the original penalty of £141,800.

The FCA stated that although they have fined several firms for transaction reporting failures, this is the first enforcement action against a firm for a breach of transaction reporting requirements since they became law under the UK MIFIR.

This comes at a time when both the EU (ESMA) and the UK (PRA/FCA) are reviewing the Markets in Financial Instruments Directive (MIFIDII) and MIFIR to improve its effectiveness and in some areas, reduce the burden on firms.  The investment banking industry is already talking about this fine, and the sentiment is that perhaps there will be more to come this year.

The importance of complete and accurate reports

The FCA actioned the fine specifically for breaching Article 26(1) UK MiFIR which states that: “Investment firms which execute transactions in financial instruments shall report complete and accurate details of such transactions to the competent authority as quickly as possible, and no later than the close of the following working day.”  In their statement, they also reminded firms that the FCA need complete, accurate and timely transaction reports “to monitor, detect and disrupt market abuse effectively.”  

This follows on from issuing their newsletter in November 2024 on market conduct and transaction reporting issues (MarketWatch Newsletter 81).  The newsletter highlighted the issues found in firms’ governance models and emphasised the importance of notification of errors to them for all reporting regimes.

Change Management- introduction of errors can go un-detected

In the MarketWatch Newsletter 81 the FCA identified that data quality issues were often introduced by firms following change management activities.  For example, they highlighted that reporting quality issues were found when:  

• firms did not use business analysis to map out business requirements before MiFID II, leaving significant reporting gaps

• there was insufficient change related documentation, including records of key decisions - making it more complex to remediate data quality issues later and back report correctly  

• there were key staff dependencies with no clear policies and procedures to manage reporting in their absence.

In the same newsletter, the FCA also illustrated that reporting issues are often caused by weaknesses in the following:

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What does good governance look like?

The regulated entity identified its failure to submit these transaction reports following a third-party review, but did not proactively report the breach to the FCA, which is required by UK RTS22 Article 15(2). Regulatory bodies expect firms to self-report failures rather than wait for enforcement actions.

Firms must implement robust reporting systems and controls as Identifying and rectifying discrepancies proactively is essential. There should be at least:  

• clear ownership of reporting regimes by a suitable Senior Manager Function (SMF),  

• a suitable Reporting Policy in place- with its key controls clearly stated,  

• an oversight committee,

• robust MI & reporting up to the SMF.
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Any accuracy and completeness issues should be logged centrally, risk assessed, reviewed regularly, addressed in good time and proactively reported to the FCA:

Strengthening internal monitoring mechanisms and third-party reviews can help ensure compliance and mitigate risks.  

A Warning to the Financial Industry- steps to take

The recent fine serves as a cautionary tale for other financial firms. Firms must prioritise compliance, invest in reliable reporting infrastructure, and actively engage with regulators.  It’s not only firms that can be fined, the responsible Senior Manager (SMF) can also receive penalties under the SMCR Code of Conduct rules.

As per RTS22 Article 15(3), firms should already have “arrangements in place to ensure that their transaction reports are complete and accurate.” Those arrangements need to “include testing of their reporting process and regular reconciliation of their front-office trading records against data samples provided to them by the [FCA] to that effect.”

Firms can also self-assess their current practices against the contents of the FCA’s Marketwatch Newsletter 81 and implement measures from their gap analysis to reduce the risk of inaccurate and incomplete reports.  Best practice is to utilise data quality monitoring tools to highlight inaccuracies and undertake reconciliations between source systems and transaction reports to continually monitor completeness/accuracy.  

With the new changes proposed to the UK and European MIFIDII reporting regimes which introduce more fields, including the client’s MIFIDII categorisation, it is even more important to get reporting correct now. This will ensure the new changes are built on solid ground.

How can Delta Capita help?

Delta Capita can offer a health-check of the following reporting regimes: MIFIR Transaction Reporting, EMIR Refit Reporting and SFTR reporting. We can also assist with your preparation of the up-coming changes to MIFIDII and MIFIR.

Please contact us to find out more or to speak with one of the team.