The Financial Conduct Authority has imposed a fine of £27,599,400 on UBS AG for breaches of transaction reporting obligations imposed by MiFID (the Markets in Financial Instruments Directive (2004/39/EC), as well as a breach of Principle 3 of the FCA’s Principles of Business, which requires regulated firms to take reasonable care to organize and control their affairs responsibly and effectively, with adequate risk management systems.
UBS’ breaches
Between November 2007 and May 2017, UBS failed to report approximately 3.65 million transactions, reported a further 83 million transactions with incomplete or incorrect details (for example incorrect identifier codes), and failed to take reasonable steps to prevent the erroneous reporting of 49 million transactions.
While the FCA acknowledges that investment banks operate in a “complex and fast-moving global financial services environment”, that makes it all the more important for them to take reasonable care to ensure that their systems and controls for transaction reporting are effective for the nature and scale of their businesses, activities, and products offered. Change management is particularly critical. The FCA’s view was that UBS had failed to take reasonable care to organize and control its affairs responsibly and effectively in respect of its transaction reporting. The failings related to aspects of UBS’ change management processes, its maintenance of the reference data used in its reporting and how it tested whether all the transactions it reported to the FCA were accurate and complete.
Calculation of UBS’ fine
The FCA calculated UBS’ fine with reference to both its current financial penalties regime and the regime that was effective prior to March 2010, given that the conduct at issue covered both these periods.
Key factors considered by the FCA in calculating the fine include:
- UBS identified and self-reported over 85% of the errors;
- UBS co-operated with the FCA during the course of the investigation;
- UBS committed significant resources to rectify the issues (at an implementation cost of approximately £39 million);
- UBS had previously been issued with a fine in November 2005 for transaction reporting failures; and
- The inaccurate transaction reporting did not profit UBS.
The FCA and UBS reached a settlement agreement at an early stage in the investigation and therefore a 30% discount (stage 1) applied. Were it not for this discount, the FCA would have imposed a fine of almost £40 million.
UBS joins a number of other major banks in receiving fines for transaction reporting failures as the FCA continues to be active in this area as part of its wider focus on issues of market integrity. The decision reminds firms that transaction reporting systems and controls must be fit for the nature and scale of their business, and designed to evolve as the business changes.