NEWS UPDATE
SELL-SIDE REGULATION
UBS fined £27.6 million for
MiFID reporting failures ESMA sparks concern with
share trading Brexit plans
The FCA hands UBS fine after more
than 130 million reports were found
to be inaccurate. Major UK stocks including Vodafone and
Coca-Cola would have to be traded within
the EU in ‘no-deal’ Brexit scenario under the
share trading obligation.
T
he UK’s financial regulator has handed UBS a fine
of £27.6 million for failings related to more than
135 million MiFID transaction reports.
The Financial Conduct Authority (FCA) said in a
statement that between November 2007 and May
2017 UBS made 135.8 million errors when reporting its
transactions over the course of the nine-and-a-half-
year period.
The investment bank failed to provide complete and
accurate information for around 87 million reportable
transactions, and reported 49 million transactions
which were not reportable.
“Firms must have proper systems and controls to
identify what transactions they have carried out, on
what markets, at what price, in what quantity and
with whom. If firms cannot report their transactions
accurately, fundamental risks arise, including the risk
that market abuse may be hidden,” Mark Steward,
FCA executive director of enforcement and market
oversight, commented.
The investment bank also failed to fully control and
take care to organise its reporting operations, the
FCA added, with failings related to UBS’ change man-
agement processes, maintenance of reference data,
and testing whether the reporting was accurate.
UBS is the latest institution to be hit with fines
related to errors with MiFID transaction reporting.
Twelve firms have been penalised by the FCA, includ-
ing Merrill Lynch, which was fined £13 million in 2015,
Deutsche Bank, which paid £4.7 million in 2014, and
Royal Bank of Scotland, which was fined £5.6 million
the year prior.
The bank qualified for a 30% discount after
agreeing to resolve the case. Without the discount,
the FCA said that UBS would have been fined £39.4
million.
10 // TheTrade // Spring 2019
M
arket participants across Europe will be forced to trade
several major UK stocks on European venues if the UK
leaves the EU without a deal later in March, sparking huge
concern from the UK’s financial regulator.
The European Securities and Markets Authority (ESMA)
published a statement on changes to the share trading
obligation under a ‘no-deal’ Brexit scenario, confirming that
14 of the UK’s biggest stocks would have to trade on venues
inside the EU. The major UK stocks listed by ESMA include
Vodafone, Coca-Cola, BP, Rio Tinto and GlaxoSmithKline.
ESMA stated that in the event of a ‘no-deal’ Brexit and
in the absence of an equivalence decision handed to the
UK by the EU, the share trading obligation will apply to all
shares traded on EU trading venues, and UK shares that are
considered liquid in the EU. The move means that European
banks and buy-side firms will not be able to trade the listed
UK shares, despite some of them being listed in the country,
or EU stocks on UK-based trading venues.
ESMA’s clarification has sparked major concerns from the
UK’s Financial Conduct Authority (FCA), which warned the
changes could see widespread disruption to trading across
Europe. With ESMA’s approach, the FCA added that it will be
impossible to avoid conflicting obligations applying to the
same instruments, as the UK will have a separate share trad-
ing obligation upon its departure from the European Union.
“This has the potential to cause disruption to market partic-
ipants and issuers of shares based in both the UK and the EU,
in terms of access to liquidity and could result in detriment
for client best execution" the FCA warned.
ESMA concluded that if the timing and conditions of Brexit
change, it will adjust its approach and inform the market of
any changes as soon as possible. At the same time, the FCA
has urged ESMA to engage with it constructively on changes
to the share trading obligation to minimise potential disrup-
tion to trading.