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EMIR, Mifid

Merrill Lynch fined 13 million GBP for trade reporting errors – has panic time arrived?

The UK’s Financial Conduct Authority(FCA) have just announced a fine of 13.2 million UK pounds given to Merrill Lynch International for incorrectly reporting 35,034,810 trades and failing to report another 121,387 under MiFID. The press release can be found here. The fine has been discounted from 18.9 million pounds following an “early settlement” discount.

Last August, Deutsche Bank were fined 4.7 million pounds for trade reporting errors (covered in this post). The basic “fine per misreported trade” was 1 pound. In this case, the FCA have increased the base fine to 1.50 in order to act as a deterrent (various discounts get applied after this due to mitigation factors, all of which are detailed in the penalty notice).

The message is clear: Trade reporting errors are a serious issue and participants can expect to be fined for breaking the rules.

Time to panic?
Several articles have been written on this blog, urging market participants not to “panic”, when it comes to meeting new trade reporting regulations, such as EMIR, REMIT and MiFID II. Trade reporting is a relatively new concept to the commodity and energy trading world, and it is easy to be persuaded to spend your way out of the obligations.

The opposite response can be to downplay the regulations, arguing that the energy and commodity part of the market is unlikely to be important to regulators, leading to carrying out compliance with too low a level of diligence.

In order to assess the reality of the situation given this fine, it is worth looking at the actual penalty notice, which can be found here.

Why such a high amount?
As with the Deutsche fine, there are in fact several reasons given as to the level of the fine (on page 13), including:

  • The sheer number of incorrect reports
  • There have been several notices already issued to MLI over these issues
  • The rules have been in place since 2007
  • There have already been fines to others on these issues, including previous ones to MLI
  • Good documentation exists for the reporting requirements

While mitigating factors have also been considered, there are still many reasons why the fine is so high.

What is the message?
While many of the aggravating factors listed above do not yet necessarily apply to EMIR, it is now over a year since the requirements came in. We will soon see new Regulatory Technical Standards which will sharpen up the definitions, and over time cumulative volumes will only increase.

At the same time, the message from the FCA is clear – sterner fines are required to increase the deterrent effect of misreporting. As a result, while panic may not be helpful, a laid back approach to reporting is likely to result in a great deal of pain.

About avivhandler

Aviv is the Managing Director of ETR Advisory, a niche consultancy focused on the regulation of the commodity, energy and financial markets. He has more than 23 years of experience in the financial, energy and commodity markets, covering regulatory compliance, credit, risk and financial technology. Prior to founding ETR, he was Partner at SunGard Global Services, where he built a Centre of Excellence in European Energy and Commodity Regulation. Before that, he founded Coherence, a consulting firm specializing in credit risk in commodity and energy trading as well as software product management. The credit practice ultimately became part of Sirius Solutions, where he was the Managing Director of Europe. He has also held management roles at KWI and Iris Financial, among other organizations. Mr. Handler holds a degree in computer science from Imperial College, University of London.


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