The Financial Conduct Authority has confirmed it has not started enforcement procedures against any firms for failings under the Mifid II regime, despite widespread errors being reported.
Under a Freedom of Information request, made by advisers Duff & Phelps, the FCA confirmed that 546 firms have admitted to errors or omissions in their transaction reporting since January 2018 – when these new Mifid rules came into place.
This accounts for around 15 per cent of the 3,724 firms covered by these rules, which stipulate that firms must report all investment transactions to the FCA.
An additional 223 firms have also been contacted by the FCA regarding potential transaction reporting errors. The UK regulator has held visits, meetings or conference calls with 74 firms for the specific purpose of discussing the quality of their transaction reporting.
Duff & Phleps says this suggests around a fifth of all investment firms have been in communication with the FCA about problems in complying with Mifid rules.
Despite these problems the FCA has not yet opened any enforcement investigations.
This is in contrast to its previous action, where the FCA fined 14 firms a total of £90m in relation to reporting problems under the older MiFID I regime.
Nick Bayley, managing director in Duff & Phelps’ compliance and regulatory consulting practice says: “We believe the proportion of firms that are getting their transaction reporting wrong is actually far higher than the 20 per cent or so that have been in contact with the FCA.
“MiFID II is the broadest and most complex piece of regulation to affect the European capital markets. It is understandable that the regulator has taken quite a pragmatic approach to firms’ compliance and has allowed them the opportunity to remediate errors and improve their reporting.
“However, the honeymoon period of education and encouragement of firms in relation to transaction reporting will not last forever. The FCA has told us that it will take a much stricter approach where firms have made no meaningful effort to comply with their obligations or failed to act on the FCA’s observations.”
The firms predicts that there will be several referrals of transaction reporting cases in 2020. But Bayley adds: “The FCA enforcement machine is crowded with other cases at present and we may not see any actual public outcomes on transaction reporting until the following year.”
The FCA also disclosed that only 682 firms (18 per cent) have requested a data extract from the regulator’s Market Data Processor (MDP) system against which to check the accuracy of their reporting. This low proportion suggests many firms do not fully understand the steps they should be taking to assure the quality of their reporting.