FCA Issues £34.5m Fine Against Merrill Lynch International

The fine represents a hardened stance by the FCA and its first enforcement action against a firm for an EMIR

The UK’s Financial Conduct Authority (FCA) has taken its first enforcement action against a firm for improperly reporting details of trading in exchange traded derivatives under EMIR. This shows the hardened stance that the FCA is taking towards these type of reporting obligations, resulting in a £34.5 million fine against Merrill Lynch International.

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Under the European Markets Infrastructure Regulation (EMIR), firms have obligations to properly report details of trading in exchange traded derivatives. This reporting is instrumental for oversight as it helps authorities assess and address any inherent levels of risk across financial systems.

Mark Steward, FCA Executive Director of Enforcement and Market Oversight, commented: “Effective market oversight depends on accurate and timely reporting of transactions. The obligations under EMIR, as with MiFID, are key aspects of such oversight.”

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Mark Steward

The reporting requirement is nothing new and was initially implemented as a reform following the financial crisis in 2008 to improve transparency within the financial markets. In an effort to sharpen its teeth, the FCA’s inaugural action is a sizeable fine against Merrill Lynch International.

In particular, the group was fined £34,524,000 for failing to report 68.5 million exchange traded derivative transactions between February 12, 2014 and February 6, 2016. The size of the fine was influenced by Merrill Lynch International’s previous transaction reporting cases. Its most previous episode from the FCA drew swift cooperation from the group however.

“It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly. There needs to be a line in the sand. We will continue to take appropriate action against any firm that fails to meet requirements,” Mr. Steward explained.

Despite the hefty fine, Merrill Lynch International actually received a 30 percent reduction of the overall penalty. This was due in part to the group settling at an early stage of the investigation – absent this consideration, the total fine would have amounted to £49,320,000.

“This is lot bigger fine than expected, and well above the MiFID I fines that topped out in the tens of millions of dollars. EMIR has been around for nearly four years and everyone kept asking if market participants are actually about to get punished for incorrect reports. Although it took nearly four years, the FCA is showing that they take look at trading information seriously and value the data,” noted Ron Finberg, who oversees business development at Cappitech.

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