UBS AG and Goldman Sachs International were fined a collective £61.3 million (approximately US $80 million) by the UK Financial Conduct Authority for transaction reporting failures over a multi-year period.
GSI was sanctioned £34.3 million for problematic transaction reporting from November 2007 through March 2017, while UBS was penalized £27.6 million for transaction reporting issues from November 2017 through May 2017. New reporting requirements across Europe went into effect on November 1, 2017, as a result of the implementation of Markets in Financial Instruments Directive that changed the list of transactions that needed to be reported and standardized the type of information that was required to be included in reports.
According to FCA, both firms failed to accurately report a large number of transactions during the relevant times, failed to report other transactions that should have been reported, and inadvertently reported some transactions that should not have been reported at all.
FCA said that GSI sustained issues in reporting because, at various times, it purportedly did not ensure it had sufficient change management procedures and controls “to manage the impact of business or upstream systems changes on transaction reporting”; did not have sufficient processes to detect transaction reporting errors on a timely basis; and did not have adequate systems and controls to accurately reflect counterparty reference data used for transaction reporting. FCA alleged that UBS also had breakdowns in change management controls and the maintenance of static data, as well as errors in its systems, technology logic and reporting processes.
Both firms benefitted from 30 percent discounts to potential penalties under the FCA sanctioning regime because, among other reasons, FCA recognized they identified many of their own errors and proactively took steps to correct their reporting breakdowns.
Compliance Weeds: Although reporting obligations are more extensive for European-based financial institutions under MiFID, the Commodity Futures Trading Commission also imposes substantial reporting obligations on US swap dealers.
In December 2015, the CFTC’s Division of Swap Dealer and Intermediary Oversight published a Staff Advisory reminding swap dealers and major swap participants of their obligation to report certain swap data timely and accurately. Staff noted “diverse reporting issues and failure,” with certain types of errors occurring “with some frequency”: readily apparent errors; incomplete reporting; duplicative swap reporting; calculation errors; and reporting delays. Staff recommended utilizing certain measures or processes to enhance reporting quality: data gatekeepers; automated review of reported data; erroneous record checks; and improved changed management practices. Staff also reminded SDs and MSPs that if they utilize third-party service providers to report swap data, they still remain responsible for complying with applicable requirements. (Click here to access the CFTC staff’s advisory.)
The consequences of faulty reporting can be expensive, and the CFTC has sought high sanctions against what it considers to be recidivist violators. (Click here for background in the article “Swap Dealer Settles Enforcement Action by CFTC for Not Filing Daily Large Trader Reports of Commodity Swaps Positions” in the October 2, 2016 edition of Bridging the Week.)