Out-Law News | 23 Oct 2017 | 4:49 pm | 1 min. read
It is the first fine levied by the FCA for failing to report details of derivative trades as required by the European Markets Infrastructure Regulation (EMIR).
Merrill Lynch settled at an early stage of the investigation, resulting a 30% discount to its fine, which would otherwise have been £49.3m.
The firm was also fined for failing to have adequate oversight arrangements and human resources in place for the reporting of ETD transactions, failing to undertake testing to ensure its reports were complete and accurate, and failing to address identified issues with its risk management systems.
The FCA said it considered Merrill Lynch's failings to be particularly serious as it had been subject to two previous fines for transaction reporting breaches.
The final notice (15 page / 113KB PDF) outlining Merrill Lynch's failings noted that its implementation project for the ETD reporting requirement under EMIR was undertaken on a very short timescale. Although EMIR came into force in mid-2013, the implementation date for exchange traded derivative reporting was not confirmed until November 2013, after the European Commission refused to extend the timeline from February 2014 until January 2015.
The FCA said Merrill Lynch did not fully-resource its implementation project until November 2013 and testing of the system took place over a shorter timescale than would usually be expected. An unnoticed error with a static data table within the reporting system meant some 68.5 million reports were not made from February 2014 until the mistake was identified two years later.
FCA executive director of enforcement and oversight Mark Steward said: "Effective market oversight depends on accurate and timely reporting of transactions. The obligations under EMIR, as with the Markets in Financial Instruments Directive, are key aspects of such oversight."
“It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly. There needs to be a line in the sand. We will continue to take appropriate action against any firm that fails to meet requirements,” Steward said.
Merrill Lynch previously received final notices relating to transaction reporting breaches from the FCA in 2015 and predecessor the Financial Services Authority 2006. It was fined £150,000 in the first instance and £13.3m in the second instance.
Earlier this year the European Commission proposed reforms to EMIR to streamline and simplify the rules for over-the-counter derivatives, reducing the amount of reporting required. If approved, the new rules will mean that ETDs will be reported only by the central counterparty on behalf of both counterparties.