MiFID II Transaction Reporting Requirements Posing Big Problem for Investment Firms

Over 1,000 investment firms identified problems with their MiFID II transaction reporting requirements in 2018, according to regulatory consultancy Bovill – raising questions around how well the industry is really adapting to the complexities of the new regime.

A Freedom of Information request found that a total of 1,335 notifications of inaccurate transaction reporting were submitted to the Financial Conduct Authority (FCA) in the first 12 months of MiFID II (which came into force on January 1, 2018) as firms struggle to get to grips with the new requirements.

The figure represents around a quarter of the 6,000 MiFID II compliant UK businesses, and Bovill Managing Consultant Damon Batten notes that it could in fact represent a significant undercount, as the data only includes businesses which self-identified errors. Under the EU directive, investment firms and trading venues are required to notify the FCA promptly if they identify any errors or omissions within their transaction reports. However, Bovill research warns that “many thousands more firms” are likely submitting inaccurate reports, but are failing to catch them or to inform the regulator.

“Even MiFID II-ready firms are struggling to submit correct reports, while many are still not ready, and some mistakenly believe they’re ready despite almost certainly making reporting errors,” says Batten.

So far, the FCA has not yet enforced the regulation with any degree of aggression, and has indicated that it is prepared to give firms time to settle in and adapt to the new regulation. However, its approach has raised ire within the industry, with prominent figures such as SCM Direct Co-Founders Alan and Gina Miller citing “a complete breakdown in the FCA regulatory enforcement action,” and threatening legal action against the regulator for failing to penalise investment managers that are breaking the rules.

Yet there are signs that the FCA’s patience is running out. On March 27, the regulator fined Goldman Sachs over £34 million for failing to properly report more than 220 million transactions. The previous week, UBS was fined £227.6 million over 135.8 erroneous transaction reports made between November 2007 and May 2017.

“With the FCA handing big fines for reporting failings to companies like UBS and Goldman Sachs, it’s time firms paid closer attention,” warns Batten. “The FCA’s goodwill will be thin for firms still unable to catch breaches by MiFID II’s second birthday.”