UK Regulatory Update: Firms Risk Reporting Fines as Regulators Begin to Bite

Last year saw dramatic changes to the European regulatory landscape as MiFID II and GDPR came into force, causing apprehension amongst businesses concerned about the time and investment needed to meet the new standards.

In lieu of initial concerns, the UK’s Financial Conduct Authority (FCA) made a statement that it would take a “sensible and proportionate approach” to policing MiFID II and GDPR. Firms were given some leeway in allowing time to acclimatise to the new requirements. As long as companies were making real and genuine attempts to get their systems to the necessary standard, and could demonstrate these efforts, the FCA would show patience before handing out substantial penalties. However, recent fines show that the FCA’s patience has grown thin.

Last week, the FCA fined a global investment bank £34.3m for failing to comply with MiFID II. This is the latest in a string of fines levied by the FCA, showing the mounting pressure being put on firms to meet regulatory requirements.

The fine follows a £27.6m penalty brought against another investment bank earlier in March – both companies having failed to “provide accurate and timely reporting” of their transactions.

To date, the FCA has handed out 13 fines for similar reporting offences since the first MiFID regulation came into force in 2007. Four of these have come in the past six months. Moreover, comments by the regulator have made increasingly explicit calls for financial services companies to fall into line.

Last week, Mark Steward, FCA Executive Director of Enforcement and Market Oversight, noted that the most recent case demonstrated “a failure over an extended period to manage and test controls… We expect all firms will take this opportunity to ensure they can fully detail their activity and are regularly checking their systems, so any problems are detected and remedied promptly.’

A key challenge facing companies seeking to adhere to the changing regulatory landscape is a lack of investment in recordkeeping and supervision processes. Many firms have kept their legacy archiving platforms – created when financial regulation was less complex, especially in a time when email and letter were the only form of written communication.

Now, firms are accustomed to using a plethora of increasingly sophisticated communication tools like Slack and Microsoft Teams both internally and to deal with their clients. This means greater complexity and a higher volume of data to process and monitor. Many financial services firms simply do not have the technological ability they need to meet MiFID II standards.

The magnitude of this issue can be seen in the number of firms currently under investigation by the FCA. A recent report by The Times showed that at least 48 UK firms were being looked at for violations of MiFID II. Despite the FCA making it clear that they did not have definite plans to fine these companies, the chance remains that these companies may be forced to pay a penalty of up to 10% of revenue. 

While the to-do list of compliance teams remains lengthy, the solution here is clear. Investment is needed in technologies that can meet the complexity of modern regulations whilst also being able to process the amount of data that modern businesses now generate. These recent fines show that penalties will to be brought against firms if they remain unable to deal with these realities. If they don’t, companies will find themselves on the wrong side of the FCA. A costly risk both reputationally and financially.  

The Smarsh Connected Suite allows financial firms to meet the challenges posed by this new wave of regulations. Producing specific data for regulators needs to be quick, easy and thorough. This requires an archiving solution that can capture, monitor and store relevant data in an easily manageable and immutable format. Smarsh’s Connected Suite enables firms to manage that entire process. From capturing data from more than 80 communications channels to extracting relevant content for production for regulators, or legal teams, in the format they require. Additionally, Smarsh offers the Supervision App for compliance teams, which delivers industry-leading supervision capabilities and efficient, team-based review workflows.

As regulators continue to clamp down on non-compliant companies, firms cannot ignore the need to invest in these types of technologies any longer.

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Shaun Hurst

Shaun Hurst

Shaun Hurst is the Technical Director for International Markets at Smarsh. He has over 18 years of experience solving complex IT challenges for Financial Services Institutions, and is a subject matter expert in topics like E-Discovery, Regulatory Requirements, Data Privacy and Cloud Computing.
Shaun Hurst

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