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SocGen Falls Foul of the UK FSA for Transaction Reporting Failures, Data Related Errors Cost it £1.58m

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The London branch of French bank Société Générale has been fined £1.575 million by the UK Financial Services Authority (FSA) for data related failures and failed submission of 80% of its transaction reports over a period of more than two years. This marks the sixth case of a fine being handed out for such failures within the UK financial services community within the last 12 months and provides yet another example of the importance being placed by the FSA on the underlying reference data items within these regulatory reports; an endeavour that has netted it £8.82 million in fines thus far.

According to the FSA, between November 2007 and February 2010, SocGen either failed to report, or inaccurately reported, 18.8 million of its 23.5 million reportable transactions. The firm also failed to retain all relevant transaction reporting data at the disposal of the FSA for the required minimum period of five years. This is similar to the breaches identified by the FSA within Barclays last year, although SocGen’s fine is significantly lower than the £2.45 million imposed on Barclays. Both SocGen and Barclays’ breaches occurred despite the FSA’s repeated reminders to firms of their obligations to provide accurate data and the importance of compliance with its rules on transaction reporting.

The FSA’s enforcement director Margaret Cole explains: “”This is the sixth case in the last year where we have taken action against a firm for failures to make accurate transaction reports. We will continue to monitor the quality of firm reporting and we are committed to taking action where necessary to ensure firms comply with their reporting obligations. SocGen failed to accurately report a very high proportion of its transactions for a significant length of time. This failure is a serious breach of our rules as it can have a damaging impact on our ability to detect and investigate suspected market abuse.”

Since August 2009, the regulator has fined six firms for errors underlying their transaction reports: on 19 August 2009 it fined Barclays £2.45 million; on 8 April 2010 it fined Credit Suisse £1.75 million, Getco Europe Limited £1.4 million and Instinet Europe Limited £1.05 million; and on 27 April 2010 it fined Commerzbank £595,000. Bringing the total received by the FSA due to these fines over the last 12 months to £8.82 million; quite a nice little earner for the regulator and a significant amount of money and negative publicity for those on the receiving end.

Under MiFID, firms are required to submit data for reportable transactions by close of business the day after a trade is executed. The FSA then uses this data to detect and investigate suspected market abuse: insider trading and market manipulation. The transaction report therefore contains data including details of the product traded, the firm that undertook the trade, the trade counterparty and the trade characteristics such as buy/sell identifier, price and quantity.

Much like other recent breaches, the firm could also have received an even higher penalty if it had not cooperated with the regulator at an early stage, says the FSA. For assisting the regulator in its investigation SocGen received (what has now become the standard) 30% discount on the fine, without which it would have had to pay up £2.25 million.

“Firms and their management must ensure they submit quality transaction reporting data and we encourage all firms to review the integrity of this data on a regular basis,” says Cole. Given the regularity with which these fines are being meted out, the industry is likely to take heed of this warning in future, although there are likely many more fines to come.

The regulator indicates that SocGen failed to report accurately across all of its asset classes due to “significant material deficiencies” in its processes and it spent an inordinate amount of time dealing with the rejection and resubmission of its transaction reports; a sure sign that underlying reference data items were incorrect. For example, the regulator indicates that it was advised by SocGen in June 2009 that approximately 324,000 transactions had been rejected due to the use of obsolete market identifier codes (MIC).

Furthermore, a total of 325, 657 trades were not reported at all and 348,675 trades were rejected and not re-submitted during the two year period. A total of 18,110,261 transactions, or 77% of all trades were inaccurately reported including: erroneous trade reference, date or times affecting 531,266 trades; erroneous counterparty codes affecting 14,655,723 trades; and erroneous instrument descriptions affecting 100,765 trades.

The failure of the firm to retain the required data internally for five years also meant that the FSA was unable to reconcile SocGen’s data with that held within the regulator’s own systems. The FSA also notes that the firm’s “inaction” until May last year meant the necessary tests were delayed until this point.

For its part, SocGen indicates that it has taken a number of steps to address the concerns raised including commissioning a formal review of its transaction reporting process and conducting an internal audit of the accuracy and completeness of its historical transaction reporting. The firm will also be implementing a remediation project to address the issues and errors identified by the review and audit and developing a data quality control process to ensure the accuracy and completeness of future transaction reporting to the FSA.

This is the space that vendors such as the post-trade services focused arm of the London Stock Exchange (LSE) are pitching their wares within in order to provide firms with an easier means of checking the reference data quality of these reports.

The full ruling of the FSA on SocGen is available to view here.

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