First major transaction reporting fine sets clear tone

7 February 2025 | UK & Europe | Articles

The FCA has taken enforcement action against a firm for breaches of transaction reporting requirements since they became law under the UK MiFIR.

Infinox Capital Limited has been fined nearly £100,000 for failing to submit transaction reports over a 6-month period. Between October 2022 to March 2023, the firm failed to submit transaction reports for single-stock CFD transactions through one of its corporate brokerage accounts. This accounts for the majority of its business.

As a fine, it represents a significant change of tone from the FCA. Firms should take this as a warning that the FCA is now more willing to take enforcement action against firms failing to report or reporting inaccurately. Beyond transaction reporting, this fine serves as a reminder of the following focus and expectation from the regulator.

Market abuse

As the regulator uses transaction reports for  the purpose of conducting market abuse surveillance, the accuracy  of its surveillance is dependent on the completeness and accuracy of the data it receives from firms. The FCA  has sent a clear message that it will not take lightly firms’ breaches around transaction reporting as it hinders their ability to monitor the markets and conduct  supervisory activities. Ultimately, abusive and criminal activity is more difficult to identify if surveillance is based on poor transaction data

Poor transaction reports may also be considered as a red flag by the FCA and may lead to the review of the firm’s market abuse systems and controls. Firms are expected to use accurate and complete transaction data when fulfilling their own surveillance obligations under article 16 of MAR. In Market Watch 79, the FCA reminded firms of their obligation to establish strong governance, testing and review frameworks to ensure not only that their surveillance systems are working appropriately but also that all relevant data is complete, accurate and adequately plugged into the monitoring systems.

Reporting accuracy and completeness

The issue of incomplete and inaccurate transaction reports has been highlighted over and over again by the FCA and most recently through its publication of Market Watch 81. The regulatory expectation is clear, in order to be able to monitor and detect market abuse effectively, it needs to receive complete and accurate information regarding the types of instruments traded, when and how they are traded and by whom.

As the FCA has increasingly established itself as a serious data-led regulator, the data it receives not only allow the regulator to fulfil its objectives but also enable it to identify gaps in firms’ reporting and ultimately failure in compliance. And now that a precedent has been set, the industry could expect to see more enforcement actions to come.

Appropriate oversight and governance

As the rules apply to all, regardless of firm sizes, so does the expectation of appropriate governance arrangement. Transaction reporting, like many other compliance obligations, should be considered upfront prior to the launch of new products or business and the question whether the obligation applies should be appropriately overseen and challenged by the firm’s senior management. In the case of Infinox, the FCA noted that during the relevant period it was the responsibility of a single individual at the firm to manually identify which financial instruments were reportable when new business was commenced, and no checks were put in place to scrutinise this process.  While it is understandable that resources may be more limited at smaller firms, this case has shown that having no oversight of systems and controls is not an option.

Openness and honesty with the FCA

The FCA highlights in its final notice that Infinox “did not proactively report the breach”. This was one of the contributing factors that aggravated the breach further, which has caused the original penalty amount to be increased by 10%.

The key takeaway here is that firms must be prepared to submit their error and omission forms in a timely manner. Of course, this doesn’t mean firms must submit an errors and omissions notification the second an issue is identified. In fact, reasonable time should be taken to understand the root cause, identify any other issues, and to consider if the solution to rectify the reports could lead to wider issues or knock on effects to other fields.

Nonetheless, firms should take a cautious approach when considering what is a ‘reasonable’ timeframe. Whilst the FCA would not favour firms sending multiple errors and omissions notifications (especially if they relate to the same transaction), undue delay could be equally criticised by the FCA.

In a broader context, the principle of openness and honesty with the FCA goes beyond the errors and omissions form. Where the root cause of inaccuracy in transaction reporting indicate other potential flaws in the firm’s business model or system and controls, a notification to the FCA under Principle 11 could potentially be required.

Lessons learnt

In issuing its first fine and making an example of the case, it would be fair to say that the FCA expect firms to take notice and look at their own reporting framework to identify if there are gaps or deficiencies. This should include, among other thing, a review of your transaction reporting governance arrangements to see if they’re still fit for purpose, whether your reporting logic still makes sense and most importantly if any issues are identified, that the regulator is promptly notified and a remediation plan put in place.

How we can help

We provide health checks that provide you with assurance on your entire transaction reporting process under the UK MiFID transaction reporting regime. This is a comprehensive assessment of your reporting arrangement, covering:

• a review of your end-to-end process, including any high-risk steps specific to your organisation and your documented policy and procedures
• an assessment of your governance and oversight arrangements for transaction reporting
• comprehensive analysis of your order management system data output against both the regulatory requirements and data received by the FCA. Using an intelligent solution overlaid with Bovill Newgate regulatory expertise and experience.

For advice on the transaction reporting regime or to find out about our health checks, get in touch.