FSA Fines Merrill Lynch For Transaction Reporting Failures

by Robin Pilgrim, LawAndTax-News.com, London

16 August 2006

The UK's Financial Services Authority announced last week that it has fined Merrill Lynch International GBP150,000 for failing to accurately report certain transactions to the FSA and previously the Securities and Futures Authority.

Between September 1996 and January 2006, Merrill Lynch executed an estimated 1.2 million transactions in non-UK European equities.

According to the FSA, 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.

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