UK's Financial Services Authority Fines Merrill Lynch £150,000 For Transaction Reporting Failures

The Financial Services Authority has today fined Merrill Lynch International £150,000 for failing to accurately report certain transactions to the FSA and previously the Securities and Futures Authority. Accurate transaction reports are critical to the FSA's ability to maintain confidence in the financial markets and reduce financial crime.

Between September 1996 and January 2006, Merrill Lynch executed an estimated 1.2 million transactions in non-UK European equities. These transactions were incorrectly reported because they showed the firm's status as 'agent' rather than 'principal'. This was because the transaction reporting system was set to report trades from the client's perspective rather than the firm's perspective.

The error in the transaction reporting system was not spotted by Merrill Lynch until December 2005. This was despite the firm's increased focus on transaction reporting issues following a private warning from the FSA in November 2002 and subsequent discussions with the FSA about certain transactions in 2004 and 2005. During this time the firm made several improvements to the systems and controls to report transactions, and increased the seniority of the team overseeing reporting, but improvements did not focus on the content of the reports.

Merrill Lynch reported the transaction failures to the FSA in January 2006 and has co-operated fully with the FSA's investigation. The firm completed a systems change to correct the error, and has revised the testing mandate to include all mandatory fields.

Background

1. The full text of the Final Notice is available on the FSA website. This includes the background to the case, the relevant statutory provisions, and the regulatory requirements contravened.
2. The FSA has previously fined three banks for transaction reporting failures in August, November and December 2005. (See press releases 086/2005, 123/2005 and 137/2005.)
3. This case was settled under the FSA's Executive Settlement Scheme.
4. Financial penalties are not treated as income by the FSA. They are applied for the benefit of authorised persons (or the issuers of securities admitted to the official list) as appropriate, and so given back to the industry in subsequent years.
5. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection for consumers; and fighting financial crime.
6. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.