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UK's Financial Services Authority Issues Fines Totaling £250,000 For Transaction Reporting Failures

Date 24/10/2012

The Financial Services Authority (FSA) has fined two firms, Plus500UK Limited (Plus500) £205,128 and James Sharp and Company (James Sharp) £49,000 for failing to provide accurate and timely transaction reports to the FSA in respect of all the reportable transactions they carried out.

Firms are required to submit details of reportable transactions by the close of the business day after which the transaction takes place.  The FSA uses this data to detect and investigate suspected market abuse (insider trading and market manipulation) and in support of its statutory objectives of maintaining market confidence in financial markets and reducing financial crime.

Between 29 June 2010 and 5 November 2011 Plus500, an online Contracts for Difference (CFD) trading facility provider, conducted 1,332,000 reportable transactions. However, the firm failed to report any of these accurately and failed to report 189,000 of them at all.  The firm’s systems and controls were inadequate in that it failed to set up appropriate reporting systems, did not have any documented procedures in place in relation to transaction reporting and failed to provide any relevant training to staff.  It therefore breached rules in SUP 17 of the FSA Handbook and Principle 3 of the FSA’s Principles for Business.

Between the 5 November 2007 and 8 February 2011 James Sharp, an independent stockbroking firm, failed to report any of the approximately 71,000 reportable transactions that it undertook. The firm’s systems and controls were inadequate in that it did not have any documented procedures in place and failed to provide and relevant training to staff. It therefore breached rules in SUP 17 and Principle 3.

David Lawton, FSA director of markets said:

“Accurate transaction reports are a key tool in our efforts to tackle market abuse.  We will take action where necessary to ensure firms – regardless of size – comply with their reporting obligations.  As well as a financial penalty, firms can also expect to incur the cost of resubmitting historically inaccurate reports.”

The firms have taken steps to improve their processes and resolve the errors, resubmitting reports to the FSA where necessary.

The firms cooperated with the FSA in the course of the investigations and agreed to settle at an early stage. In doing so each firm qualified for a 30% discount. Without the discount the fine for Plus500 would have been £293,040 and James Sharp would have been fined £70,000. Plus500 are the first regulated firm to be fined in respect of transaction reporting failures under the new FSA penalties policy.  This policy was established to provide a consistent and more transparent framework for the calculation of financial penalties. The regime came into force on 6 March 2010 and applies to any breaches which occur on or after that date. As a result the penalty imposed on Plus500, which was based on the number of affected transactions, was larger than it would have been under the previous regime.

Background:

  1. Final Notices for Plus500UK Limited and James Sharp and Company.
  2. These are the eighth and ninth fines the FSA has issued since August 2009 in relation to firms failing to provide accurate transaction reports. On 8 September 2009 the FSA fined Barclays, on 8 April 2010 the FSA fined Credit Suisse, Getco Europe Limited and Instinet Europe Limited, on 27 April 2010 the FSA finedCommerzbank AG, on 25 August 2010 the FSA fined Société Générale and on  20 January 2011 the FSA fined City Index Limited.
  3. Previous warnings on the importance of transaction reporting can be found at:Market Watch issue 28 and the Transaction Reporting User Pack (TRUP) (version 1 published in 2007, version 2 in September 2009 and version 3 now available on line). 
  4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; securing the appropriate degree of protection for consumers; fighting financial crime; and contributing to the protection and enhancement of the stability of the UK financial system.
  5. The FSA will be replaced by the Financial Conduct Authority and Prudential Regulation Authority in 2013. The Financial Services Bill currently undergoing parliamentary scrutiny is expected to receive Royal Assent by in late 2012 or early 2013, subject to the parliamentary timetable.