Cargill & Merrill Lynch fined: is the industry ready for the regulatory storm?

December 4, 2017

 

The weather is a bit stormy in the trading regulatory world. Regulators are taking compliance seriously, and the amount of the fines should press companies to prepare carefully.

 

 

Merrill Lynch fined £34.5m for failing to report ETD under EMIR

 

EMIR’s fury has struck!

 

Wealth Management company Merrill Lynch was fined £34.5m on the 23rd of October 2017 for failing to report Exchange Traded Derivative (ETD) under EMIR.

 

The UK’s Financial Conduct Authority (FCA) decided to sanction the company for not reporting ETD transactions under EMIR from 12 February 2014 to 6 February 2016.

“The FCA decided to sanction the company for not reporting ETD transactions under EMIR from 12 February 2014 to 6 February 2016.”

Initially, the fines was expected to reach 68.5 million but has been discounted due to early settlement.  This is the first time the FCA decides to penalise a company for failing to report details of trading in exchange traded derivatives, under the European Markets Infrastructure Regulation (EMIR), and this shows how important this kind of reporting has become.

 

According to FCA’s final notice to Merrill Lynch, key factor explaining this decision include the lateness of the finalisation of the ETD EMIR requirements, the resourcing around reporting, the oversight and testing and also subsequent remediation. The fine considers all of these matters.

 

 The company had already been fined £13m for trade reporting errors under MiFID in 2015.

 

Cargill fined $10m for misreporting marks under Dodd Frank

 

On November 6th of 2017, the Commodity Futures Trading Commission (CFTC), the US agency that regulates futures and option markets, fined Cargill $10m for the misreporting of marks to SDRs and counterparties under Dodd Frank.

“Cargill provided counterparties and the SDR inaccurate marks which had the effect of concealing up to ninety percent of Cargill’s mark-up.”

According to the CFTC’s release “Cargill provided counterparties and the SDR inaccurate marks which had the effect of concealing up to ninety percent of Cargill’s mark-up.” In addition, Cargill “also failed to diligently supervise its employees in connection with these inaccurate marks, and in connection with inaccurate statements made to swap counterparties. In particular, the CFTC Order finds that Cargill provided marks that concealed its full mark-up because of a concern that providing accurate marks would reduce Cargill’s revenue.”

 

With such examples, regulators from both sides of the Atlantic are making it clear that compliance is a serious issue and that any infringement will be firmly sanctioned.

 

 

The 8th ETRC 2018 Summit provides the best platform for legal and compliance officers to communicate directly with regulators and get a clear update on what comes next in the energy trading regulatory world (EMIR, MiFID II, Dodd Frank, etc.).

 

 

Sources:

 

Related sessions from ETRC 2018:

  • Update from financial regulators

    • MiFID II’s first feedback

    • Anti-abuse activity under MAR: Enforcement

    • Brexit: Potential consequences

    • EMIR review: What is the timeframe?

    • What are the main potential changes?

    • What is new under CRD and SFTR?
       

  • Q&A with the Financial Regulators: Exclusive Q&A session between the Financial Regulators and audience to address issues and ask questions on around:

    • MiFID II: Position limit and position reporting challenges

    • Hedging policy: Definition and conditions

    • Enforcement of the regulations: Anti-abuse measures and investigation

    • Review of EMIR: Timeframe
       

  • National Regulator’s update

    • Feedback on data collection quality and analysis

    • Cases in progress

    • Is REMIT review in the cards?

 

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