Merrill Lynch, the investment banking arm of Bank of America, has been fined 34.5 million pounds by the financial watchdog of Britain for a transaction reporting failure. This is Merrill Lynch’s third violation of the same nature in a little over a decade. But it is the first time the Financial Conduct Authority is taking an enforcement action against a financial institution which has failed to report the details of derivatives trades under the EMIR – European Markets Infrastructure Regulation.
“It is vital that reporting firms ensure their transaction reporting systems are tested as fit for purpose, adequately resourced and perform properly. There needs to be a line in the sand. We will continue to take appropriate action against any firm that fails to meet requirements,” said the enforcement executive director at Financial Conduct Authority, Mark Steward.
According to Britain’s Financial Conduct Authority the investment bank failed in ensuring there were adequate oversight arrangements by not undertaking testing or allocating enough personnel charged with the responsibility of meeting reporting obligations with regards to the trading of derivatives. The failures by Merrill Lynch occurred between the years 2014 and 2016.
During the early stages of the investigation Merrill Lynch agreed to a settlement and this resulted in the bank paying 30% less in fines. While stating that none of its customers suffered losses Merrill Lynch also added that it had every intention of ensuring compliance with all the applicable regulatory requirements.
In April 2015 the investment bank was fined approximately 13.28 million pounds after it failed to report transactions which occurred between the years 2007 and 2014 accurately. Eleven years ago Merrill Lynch was also fined 150,000 pounds after a reporting failure in share trading.
Global financial crisis
After the global financial crisis that occurred between 2007 and 2009, reporting requirements for the derivatives market were toughened by regulators in the European Union. At the time of the crisis regulators were unable to easily tell which financial institutions had high exposure to large and risky positions. This resulted to uncertainty in the markets. With the new rules however regulators are able to spot when uncontrolled risks are building up as banks are required to report in a timely manner their derivatives trades.
In recent years several firms have been penalized by the Financial Conduct Authority over failures in reporting and systems. This includes Deutsche Bank which was at the beginning of the year fined approximately 163 million pounds after serious anti-money laundering control failures.