The regulatory structure in most Western countries nowadays is becoming not only extremely well organized and detailed, but also very strict. Just this year, Australia, New Zealand, Japan and probably most conspicuously, the United States have all been involved in very detailed reformation process as to how to monitor activity in the financial markets under their jurisdiction.
FCA Shows Its Might
Britain is no exception, and with the recent handover of regulatory responsibility to the newly formed Financial Conduct Authority (FCA) after the long-established Financial Services Authority was consigned to the history books in April this year. The new regulatory authority is keen to demonstrate its might in order to gain credibility as the authority which oversees the world’s largest financial center, London.
There has been considerable attention devoted to transaction and trade reporting procedures recently, one poignant example being that of the Dodd-Frank Act’s stipulation in the United States that all electronic trades should be recorded by a trade repository. The FCA is going down a similar route, and requires all transactions to be reported.
Royal Bank of Scotland Hit With Fine
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Yesterday, the FCA issued a penalty to the value of £5.6 million to Royal Bank of Scoltand for failing to properly report 44.8 million transactions between November 2007 and February 2013.
The FCA detailed that the financial institution failed altogether to report 804,000 transactions between November 2007 and February 2012. This represents 37% of relevant transactions carried out by RBS in this period, and breaches FCA rules on transaction reporting and its requirements for firms to have adequate management and controls.
Tracey McDermott, the FCA’s Director of Enforcement and Financial Crime, said: “Effective market surveillance depends on accurate and timely reporting of transactions. We have set out clear guidance on transaction reporting, backed up by extensive market monitoring, and we expect firms to get it right. As well as a financial penalty, firms can expect to incur the cost of resubmitting historically incorrect reports. We will continue to take appropriate action against any firm that fails to meet our requirements.”
The FCA’s overall objective is to ensure that markets function well. Accurate and complete transaction reporting by firms is an essential tool in delivering this objective. The FCA uses these reports in a number of ways – including identifying and investigating suspected market abuse, for example insider trading and market manipulation. The FCA has stipulated that should the FCA sees any evidence of firms not acting properly it will not hesitate to act.
Reason For Concern
According to the FCA, these particular failures at Royal Bank of Scotland are particularly concerning because the FCA already provides extensive guidance to firms on how to submit and check these reports, and has taken action against seven firms, including Barclays and Credit Suisse, for similar reporting errors. The size of the fine reflects the serious nature of the issue. RBS agreed to settle at an early stage of the investigation, and received a 30% reduction of their fine.