Following two high profile fines for regulatory reporting failures, totalling nearly £62 million by the UK’s FCA, the fines prompted an interesting observation by the Director of Enforcement and Market Oversight at the FCA.
“These cases demonstrate, yet again, that transaction reporting is not just about the fight against market abuse: it is also about whether firms are able to regulate, supervise and understand their own activities properly. And these problems should never have persisted for such long periods of time. Firms should implement regular, 6-monthly reconciliations to detect reporting issues and to prevent breaches becoming endemic.”
These follow 12 previous fines for MiFID reporting breaches and are nearly double the amounts of the previous twelve! They show the intent of regulators to tighten up regulatory reporting enforcement and came with a warning –
“The failings in this case demonstrate a failure over an extended period to manage and test controls that are vitally important to the integrity of our markets. These were serious and prolonged failures. We expect all firms will take this opportunity to ensure they can fully detail their activity and are regularly checking their systems so any problems are detected and remedied promptly, unlike in this case.”
Now that we have moved on from MiFID reporting to the MiFIR reporting regime, which is more complex, many firms will be undertaking an urgent review of how they handle regulatory reporting. In the UK, the FCA noted when announcing the fines that “competent authorities need to receive complete and accurate information regarding the types of instrument, when and how they are traded, and who has traded them. A failure to submit complete and accurate transaction reports may result in regulatory action.”
The risks posed by reporting failures now extend beyond just fines in the UK. The Senior Managers and Certification Regime (SMCR) makes senior managers personally liable for transaction reporting controls. As a result, many firms and senior managers are going to be taking a close look under the hood of their regulatory reporting systems to comfort themselves that they have a robust and resilient set of controls ensuring the quality of the data output.
With these events, being coincident with the advent of the Securities Financing Transactions Regulation (SFTR), it makes for a timely moment to ensure the transaction reporting process is sufficiently rigorous when it comes to governance and controls. Our soon to be published whitepaper (“The New Kid on The Financial Regulatory Reporting Block”) emphasises the need for IT driven solutions to be robust given the complexities of the SFTR. The solution must deliver complete and accurate reconciled reporting on a continuous basis.
As the rhyme says “With a gruff huff puff, he puffed just enough; And the hay house fell right down” and the analogy could be extended to regulatory reporting. It is time to make sure your regulatory reporting house is not built with hay or twigs but more as the third pig decided, “I shall build my house with bricks”. Then you can avoid a fine by the “hair of your chinny chin chin”!!!!