FOI request discovers 15% of UK firms admit to transaction errors

A Freedom of Information (FOI) request made by global compliance and regulatory consulting practice Duff & Phelps has found that since January 2018 a total of 546 firms have admitted to making errors in regards to the reporting of transactions.  

The data release shows that around 15% of the 3,724 UK investment firms have reported error transactions or omissions to the Financial Conduct Authority (FCA), while an additional 223 firms have been proactively contacted by the FCA regarding potential reporting errors.

These results suggest that the FCA has contacted around 20% of all  investment firms regarding errors in reporting since the launch of the MiFID II regime, which went live on 3 January 2018.

Moreover, the UK financial regulator has also been involved with 74 other firms of which it has held visits, meetings or conference calls with the sole aim of discussing the quality of their transaction reporting.

Nick Bayley, Managing Director at Duff & Phelps, commented: “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. 

“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 errors 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.”

Furthermore, the FOI request found that only 18% of firms requested a data extract from the regulator’s Market Data Processor system in order to check the accuracy of their reporting – suggesting that many firms do not fully understand the steps needed to assure quality reporting.

Despite the high percentage of firms struggling to comply with the new rules, no official transaction reporting enforcement investigations are yet to be opened by the FCA, who previously fined 14 different firms over £90m in relation to reporting under the previous MiFID I regime.

Bayley concluded: “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 crowded with other cases at present and we may not see any actual public outcomes on transaction reporting until the following year.

“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 realise 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.”