On 18 March 2019 the FCA fined UBS £27.6m for failings relating to 135.8 million transaction reports between November 2007 and May 2017. On 27 March 2019, the FCA fined Goldman Sachs International (GSI) £34.3m for failing to provide accurate and timely reporting relating to 220.2 million transaction reports between November 2007 and March 2017. As readers will likely know, a transaction report is a data set submitted to the FCA that relates to an individual financial market transaction which includes, but is not limited to, details of the product traded, the firm that undertook the trade, the trade counterparty, the client (where applicable) and the trade characteristics, price, quantity and venue. FCA rules require firms to submit complete and accurate transactions reports on a timely basis. These reports assist in meeting the FCA's objective of protecting and enhancing the integrity of the UK's financial system. Both firms breached relevant Handbook provisions (SUP chapter) and Principle 3 of the FCA's Principles for Businesses.
UBS failed to submit reports in relation to 3.65 million transactions. FCA rules require that reportable transactions contain specified information which includes firm identification codes, transaction times and trading capacity. UBS inaccurately reported some 83 million transactions by using an incorrect identifier code for the counterparty to a transaction.
GSI failed to accurately report an estimated 204.1 million transactions. The FCA’s final notice describe 11 key transaction reporting errors, in breach of FCA rules, which occurred during the relevant period. These included failures to accurately record the counterparty, wrongly reporting the capacity in which GSI acted and failure to accurately report trading venue.
Both firms were found to have breached Principle 3 which requires a firm to take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems. In particular UBS breached Principle 3 by:
- failing to have adequate systems and controls in place to ensure that various mandatory fields in the transaction reports submitted were complete and accurate;
- not having in place adequate change management controls to manage changes impacting transaction reporting processes and systems; and
- failing to undertake sufficiently robust reconciliations and testing.
GSI breached Principle 3 by:
- failing to maintain adequate change management procedures to manage transaction reporting in relation to business or upstream changes;
- not maintaining comprehensive controls to prevent transaction reporting errors; and
- having inadequate systems, controls and processes to maintain the accuracy and completeness of counterparty reference data.
For UBS, the total number of absent, inaccurate or erroneous transaction reports falling within the old penalty regime was 20,127,460 for which the FCA imposed a penalty (including 30% discount for early settlement) of £2,555,000. In coming to its decision on penalty the FCA took into account the fact that UBS was fined by FCA in November 2005 in respect of transaction reporting failings. GSI had a significantly higher number of erroneous reports (113,514,148) and accordingly suffered a higher penalty (£10,150,000). However, the penalty in proportion to number of errors was less, reflecting GSI’s better disciplinary history.
In transaction reporting cases, the FCA ascribes a value of £1.50 for each failure to report and £1 for each erroneous report. In both cases the FCA deemed the seriousness to be level 3 and the fine is therefore 20% of the starting figure. In both cases the FCA then applied an aggravating factor increase to the fine. In GSI’s case this was 10% to reflect the fact that this is an area where the FCA has given substantial and ongoing support to the industry regarding transaction reporting requirements. In the case of UBS the uplift was 20% to also reflect UBS’s disciplinary history.
Comment
Transaction reports help the FCA identify potential instances of market abuse and combat financial crime. It is no surprise then that since 2009 the FCA has fined 14 firms for transaction reporting errors.
Generally, firms want to comply with transaction reporting rules and unlike some other areas of non-compliance (such as mis-selling) there is no real conflict between firms’ own financial interests and the interests of the regulator. However, accurate transaction is complex and highly technical, requiring significant investment in IT systems and teams of highly skilled staff for which there is an industry shortage.