FSA fines Commerzbank for transaction data failures

Reporting system Mitre built with “deficiencies”

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The Financial Services Authority (FSA) has imposed a £595,000 fine on Commerzbank for breaching transaction reporting rules.

According to the FSA, the bank failed to submit correct transaction reports relating to around 1.03 million transactions, an estimated 94 percent of the firm’s reportable transactions between 5 November 2007 and 20 November 2009. However, the FSA said that the penalty was reduced by 30 percent from £850,000 because the Commerzbank cooperated fully during the investigations.

Firms are required to have systems and controls in place to ensure they submit accurate data for reportable transactions by close of business the day after a trade is executed. The FSA uses this data to detect and investigate possible market abuse, such as insider trading and market manipulation.

The FSA found that although individuals within Commerzbank were aware of shortcomings in the firm’s transaction reporting system, Mitre, they did not notify management. Furthermore, the bank failed to promptly carry out internal checks after the regulator discovered the errors in the bank’s data, and only started to address the issues when it carried out a review of transaction reporting in January 2009, and reported on the review in June 2009.

“The individuals aware of the shortcomings and the FSA’s requests did not appreciate the regulatory implications resulting, and the urgency with which the firm should have addressed those issues,” the FSA wrote in its penalty notice to Commerzbank.

The FSA also outlined in the notice the deficiencies of Commerzbank’s Mitre system. It said that the reporting system was built inaccurately and was not approved by reviewers prior to implementation, which resulted in Mitre not having “adequate functionality” to ensure the full inclusion of reportable transactions and the accuracy of reports.

In addition, the FSA said that the transaction reporting errors were partly due to a lack of involvement and technical challenge from the compliance department in the build of the system.

Earlier this month, three major firms, including Credit Suisse, were fined a total of £4.2 million by the FSA for failing to provide “accurate and timely transaction reports” to the regulator.

Other banks have also been penalised by the FSA for systems and controls failures, including Nomura, UBS and Barclays.

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