More than 1,000 investment firms were found to have fallen short of transaction reporting requirements under MiFID II in 2018, while experts warn "many thousands more" could be picked up by an increasingly vigilant regulator.
There were 1,335 notifications of transaction reporting submitted to the Financial Conduct Authority (FCA) in the first year of MiFID II, which came into force in January 2018, with firms struggling to get to grips with newer, more complex requirements, according to research from regulatory consultancy Bovill.
The firm warned the figures only represent firms that "noticed they were in breach" of the new rules and "many thousands more firms are likely submitting inaccurate reports, but are not catching them and informing the regulator".
While the FCA has signalled it will act with proportionality and allow the market time to bed in to the new requirements, recent high-profile fines given to Goldman Sachs and UBS with regard to the initial MiFID regulation have led legal experts to warn the regulator could be set to ramp up enforcement action.
Bovill explained the reported breaches are most likely from firms that were "MiFID II-ready" before the new requirements came into play, employing "error detection controls" within the first year of the new regime.
However it warned that even MiFID II-ready firms are "struggling to submit correct reports", while many are still not ready, and some "mistakenly believe they are" ready despite "almost certainly making reporting errors".
Managing consultant at Bovill Damon Batten explained: "These results show a substantial number of the 6,000 UK firms executing transaction reports are falling foul of the more complex requirements of MiFID II.
"And these are just the firms that had done their homework and were ready in time for the new regime."
He added that the FCA is unlikely to "come down hard" on firms for making reporting errors, it will penalise firms that cannot "identify and report them promptly".
"Time is of the essence for them to fix things and demonstrate they can clear up their own messes and prevent them from happening again," Batten said.
"The FCA's goodwill will be thin for firms still unable to catch breaches by MiFID II's second birthday.
"The Goldman Sachs and UBS fines are as clear a warning shot as any of the potential consequences for firms that do not take action now."
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