FCA fines Merrill Lynch £34,524,000 over EMIR

Chris Hamblin

31 October 2017

The EMIR-related misconduct occurred between 12 February 2014 and 6 February 2016. The bank settled at an early stage of the FCA’s investigation, qualifying for a 30% discount. The regulator held it to have contravened article 9 of EMIR, as it applies to exchange traded derivatives, by failing to report 68½ million transactions that it ought to have reported. It went against principle 3 by:

failing to make adequate arrangements to oversee the reporting of trading in exchange traded derivatives under EMIR;
failing to test the completeness and accuracy of the reports it was submitting for the purposes of its obligations to report trading in exchange-traded derivatives in accordance with EMIR;
failing to allocate enough manpower to report trading in exchange-traded derivatives in accordance with EMIR; and
failing to fix problems that it had spotted in "the risk management systems applying to the reporting requirement" swiftly enough.

The requirement to report trading in exchange traded derivatives was introduced after the financial crisis struck in 2008. The idea was to help regulators see more things that were occurring in financial markets.

The staggering size of the fine can be attributed to the 'aggravated' nature of Merrill Lynch's transgressions. These, the regulator thought, were particularly serious because:

the firm has received two previous final notices for bad transaction reporting;
the FCA directly communicated the importance of EMIR reporting requirements to firms in a variety of ways, such as updates on its website, the creation of an EMIR mailing list for firms to sign up to (and through which the FCA circulated regular updates), round-table meetings with the main trade associations (the International Swaps and Derivatives Association and the Futures Industry Association), seminars (hosted by both the FCA and others); and
it has taken enforcement actions in relation to similar failings by other firms in relation to other categories of transaction reporting.