No FCA Enforcement Referrals yet, Despite Hundreds of Firms Still Struggling with MiFID II Transaction Reporting

London – A total of 546 firms have admitted to errors in their transaction reporting since January 2018 according to data released under a Freedom of Information (FOI) request made by Duff & Phelps, the global advisor that protects, restores and maximizes value for clients. 

  • 546 firms have reported errors in transaction reporting under MiFID II to the FCA
  • A further 223 firms have been contacted by the FCA regarding potential transaction reporting errors 
  • No MiFID II transaction reporting cases have been referred by FCA into enforcement  

Of the 3,724 UK investment firms which must report transactions under MiFID II to the FCA, around 15% have notified the FCA of errors or omissions in their transaction reports, whilst a further 223 firms have been proactively contacted by the FCA regarding potential reporting errors. 

This suggests around a fifth of all investment firms have been in communication with the FCA about errors in their reporting under the new MiFID II regime, which went live on 3 January 2018. 
The UK regulator has held visits, meetings or conference calls with 74 firms for the specific purpose of discussing the quality of their transaction reporting. 

Despite many firms struggling to comply with the new rules, the FCA has not yet opened any transaction reporting enforcement investigations.  Notably, the FCA imposed a total of over £90m of fines on 14 different firms in relation to reporting under MiFID I, which went live in November 2007. 

Nick Bayley, Managing Director of Duff & Phelps’ Compliance and Regulatory Consulting division comments: 

“We believe the proportion of firms that are getting their transaction reporting wrong is actually far higher than the 20% or so that have been in contact with the FCA about their errors. MiFID II is the broadest and most complex piece of regulation to affect the European capital markets. It is understandable that the regulator has taken quite a pragmatic approach to firms’ compliance and has allowed them the opportunity to remediate and improve their reporting. 

“However, the honeymoon period of education and encouragement of firms in relation to transaction reporting will not last forever. The FCA has told us that it will take a much stricter approach where firms have made no meaningful effort to comply with their obligations or failed to act on the FCA’s observations”.  

“In light of the number and size of public actions the FCA took under MiFID I and the relatively low hurdle that the FCA now applies when referring cases for enforcement, we could see several referrals of transaction reporting cases in 2020.  However, the FCA enforcement machine is choc-a-bloc with other cases at present and we may not see any actual public outcomes on transaction reporting until the following year.”  

The FCA disclosed that only 682 firms (18%) have requested a data extract from the FCA’s MDP system against which to check the accuracy of their reporting. This low proportion suggests many firms do not grasp the sort of steps they should be taking to assure the quality of their reporting. 

Bayley continues: “While some firms are actively addressing their reporting problems and correcting inaccurate reports, many are probably failing to make a concerted effort to meet their regulatory obligations and may not even realize the extent of their reporting errors.  Given the express obligation in RTS22 to regularly reconcile front-office trading records against data samples provided by the regulator, it is surprising that most firms have not requested any such samples from the FCA’s MDP.”

Notes
All statistics were obtained from an FOI response from the FCA on November 28, 2019. 

About Duff & Phelps
Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. With Kroll, a division of Duff & Phelps since 2018, our firm has nearly 3,500 professionals in 28 countries around the world. For more information, visit www.duffandphelps.com.

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