On September 7, the UK’s Financial Conduct Authority (FCA) published the 65th edition of its Market Watch newsletter on market conduct and transaction reporting issues (the Newsletter). The latest issue provides market participants with guidance on (1) FCA information confidentiality requirements; (2) documents subject to legal professional privilege (LPP); and (3) highlighting certain data issues when transaction reporting under the Markets in Financial Instruments Regulation (EU) No 600/2014 (MiFIR).
In the Newsletter, the FCA stressed the requirement for firms to keep information requests sent by the FCA to the firm strictly confidential and not discussed with staff outside of the firm’s Compliance department without the FCA’s prior agreement. Firms that do not comply with the confidentiality requirements run the risk of reputational damage and regulatory action. The FCA urged firms with FCA’s consent to carefully select staff in another department of the firm and inform them not to contact other staff without informing Compliance, who should seek the FCA’s approval.
Furthermore, the FCA stated that material relating to firms’ clients that could be subject to LPP should not be submitted as an attachment to a suspicious transaction report or market observation as it may be disclosable by the FCA in the event of an enforcement action being taken. To avoid a potential breach of LPP, reports should not include material such as direct text extracts or quotes; however, firms should disclose the presence of such material to the FCA where relevant to the notification.
On transaction reporting, and in connection with its 59th and 62nd editions of Market Watch, the FCA has further identified issues with the quality of data being submitted within the MiFIR transaction reporting regime, including:
- failing to report the immediate rather than the ultimate underlying instrument for transactions executed in derivatives;
- inconsistent dissemination of trading venue transaction identification codes (TVTICs) by trading venues to investment firms and failure by investment firms to report TVTICs accurately;
- completing the country of branch field when the buyer or seller was not a client of the firm or using such field to highlight the geographic location of the buyer or seller rather than the branch that received the client order; and
- not having robust systems in place to detect errors in reporting; firms cannot rely upon the FCA’s acceptance of a report that such report was accurate.
The FCA reminded firms to review transaction reports and check their completeness and accuracy prior to submission.
The Newsletter is available here.