Financial Conduct Authority (FCA) slaps Merrill Lynch with £34.5m fine for derivative trading failings

The City’s top watchdog has slapped banking giant Merrill Lynch with a £34.5m fine for not reporting tens of millions of derivative trades over a two year period.

The groundbreaking enforcement action by the Financial Conduct Authority (FCA) follows Merrill Lynch’s failure to report details of 68.5m derivative transactions under the European Markets Infrastructure Regulation (EMIR).

The breaches took place between 12 February 2014 and 6 February 2016.

The fine was reduced from £49.3m after Merrill Lynch agreed to settle at an early stage of the investigation.

“Effective market oversight depends on accurate and timely reporting of transactions. The obligations under EMIR, as with MiFID, are key aspects of such oversight,” said FCA executive director of enforcement and market oversight Mark Steward.

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.

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Reporting of derivative trades is necessary to help regulators understand the risk banks and other financial institutions face. The EMIR reports were introduced in the wake of the 2008 financial crisis to help “improve transparency within financial markets”.

While fine is substantial, it is not the largest handed out by the FCA this year. In January Deutsche Bank hit with a £163m penalty relating to culture/governance and financial crime failings in its investment banking arm. The largest fine the FCA has ever handed out was to Barclays, some £284m for breaching the FCA’s principles for businesses.

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