Goldman Sachs International (GSI) has been fined by the Financial Conduct Authority (FCA) for violating transaction reporting rules (SUP 15 and 17 of the FCA Handbook) in relation to over 200 million transactions between November 2007 and March 2017.
For nearly 10 years, GSI failed to ensure it provided complete, accurate and timely information in relation to about 213.6 million reportable transactions, and also erroneously reported 6.6 million transactions when they were not reportable.
According to the FCA
“[T]his case demonstrates a failure over an extended period to manage and test controls that are vitally important to the integrity of our markets. These were serious and prolonged failures. We expect all firms will take this opportunity to ensure they can fully detail their activity and are regularly checking their systems so any problems are detected and remedied promptly, unlike in this case.”
The FCA also found that GSI breached Principle 3 of the FCA Principles for Business, in that it failed to take reasonable care to organise and control its affairs responsibly and effectively, and failed to have adequate risk management systems in respect of its transaction reporting.
The history in brief:
* At the end of 2008, GSI requested that its Internal Audit function undertake a review of certain issues the result of which identified gaps in the firm’s transaction reporting systems and controls.
* In late 2009, GSI launched a ‘Review Programme’ to ensure that regulatory data reported externally to various regulators and exchanges was reported in an accurate, complete, and timely fashion.
* By 2014, GSI and other entities within the group had a known and growing list of issues to address across multiple global regulatory obligations, including transaction reporting. GSI then established a global enhanced programme to oversee the completion of all outstanding remediation and enhancement items covering multiple regulatory obligations.
* In March 2015 GSI also appointed a skilled person (s.166 of FSMA), in response to a Requirement Notice issued by the FCA, to assess their transaction reporting systems and controls.
* GSI subsequently took steps to develop and test additional thematic and diagnostic checks, which led to the identification of a number of transaction reporting errors that were not previously identified.
Given the firm’s size and the high volume of transaction reports impacted by errors, the potential impact of the failings in this case was significant. The FCA considered GSI’s failures serious because, between 2007 and 2017, the FCA had consistently communicated to firms the need for them to take reasonable steps to ensure that they had systems and controls in place to ensure that data used for transaction reporting is accurate and complete. This reporting is extremely important because accurate and complete transaction reporting helps underwrite market integrity and enables better supervise firms and markets.
In its decision, the FCA acknowledges the significant resources devoted by GSI to remediating the causes of the failings, as well as its full co-operation prior to and during the course of the investigation. GSI agreed to resolve the case and, hence, qualified for a 30% discount in the overall penalty. Without this discount, the FCA would have imposed a financial penalty of £49,063,900.
It appears that GSI is not alone in failing to meet its transaction reporting obligations:
* Only a few weeks ago a similar fine was imposed on UBS AG (£27.6 million). Between November 2007 and May 2017, UBS failed to provide complete and accurate information for almost 87 million reportable transactions, and also incorrectly reported 49.1 million transactions, when they were not reportable. * In October 2017, Merrill Lynch was fined for the same failures.
What can firms learn from these fines?
* Transactions reporting is onerous but necessary and the FCA has shown low-level tolerance in this area;
* Internal oversight arrangements must be periodically tested and senior management should ensure adequate resources are allocated to transaction reporting areas;
* An initial attribution of £1.50 per missing or inaccurate transaction reporting, and of £1 for erroneous reporting, could be devastating to a small or medium sized firm.
If you require assistance with your transaction reporting please do not hesitate to get in touch with us (on 02034 573 283 or by email at firstname.lastname@example.org).