FSA fines Merrill Lynch Intl

Losses & Lawsuits

The Financial Services Authority (FSA) has fined Merrill Lynch International £150,000 for inaccurate transaction reports to the FSA and the Securities and Futures Authority (SFA).

The FSA alleged that between September 1996 and January 2006, Merrill Lynch incorrectly reported an estimated 1.2 million transactions in non-UK European equities.

Merrill's questionable transactions showed the firm's status as 'agent' rather than 'principal', because the transaction reporting system was set to report trades from the client's perspective rather than the firm's, according to the FSA.

Merrill only spotted the error in the transaction reporting system in December 2005. This was despite the broker-dealer'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.

The broker-dealer violated rule 5.49 of the SFA, which requires a firm to supply the SFA with details about the investment transactions it effects.

In imposing the financial penalty, the FSA took into account relevant factors, including the fact that Merrill acted proactively in reporting the failure to the regulator and that the reporting failure was not deliberate or reckless.

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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