Nobody Reads These Things Anyway, Right?

Not such a good week for the folks at Deutsche Bank, then, who endured vast embarrassment over multi-year reporting errors after the UK Financial Conduct Authority (FCA) issued its final notice on Thursday.

The fine itself for the errors ─ which saw every equity swap contract-for-difference trade reported with reversed buy and sell indicators from November 2007 to April 2013 ─ was relatively paltry at around $7.8 million. The damage was far more on the visible, public relations side, accompanied with statements from the FCA that were vociferous enough to force a wince, a sharp intake of breath through the teeth, and a collective murmur of "ouch" around the newsroom when the e-mail landed in various reporters' inboxes.

Frankly, it's remarkable on both sides. On Frankfurt's, in that nobody at the bank bothered to check a transaction report in six years. On the FCA's side, that nobody bothered to look into this sooner. The authority was aware of reporting problems at Deutsche by all accounts, having issued it a private warning for similar problems at an earlier time, but this didn't flag up until February 2013.

As Deutsche Bank is a passporting entity under the Markets in Financial Instruments Directive, the FCA doesn't have the ability to penalize it for systems and process failures, which probably explains the limited pecuniary penalty. That responsibility lies firmly with Bafin, the German regulator. To Deutsche's credit, while it doesn't excuse 30 million incorrect reports, it swung into action immediately after it was asked to validate its reports by the FCA, and privately, people with knowledge of the matter also point out that a large number of other banks have been fined for similar contraventions. Which is somewhat similar to being caught burying the bodies, and shouting: "Look at what the other guys did! Look! Look at what they did!", but I suppose they have to try.

Last week, I filed my column for this month's edition of Waters, which should be live this morning on the website. In that column, I said that it was going to be hard to push on ahead with more complex regulation if people can't get the basics of reporting right. Lo and behold, three days after filing that piece, exactly that happens. It should reinforce the point that there is something fundamentally broken with how reporting is working at present, something that rather desperately needs attention ─ unless we all think that match rates as low as three percent for EMIR-related reporting structures are even remotely useful? And as Matthew Coupe, director of regulation and market structure at Nice Actimize pointed out when I quoted him in my story on the Deutsche Bank debacle, the regulators need to start recognizing that effect market surveillance doesn't just rely on one monitoring vector.

Mark also, on the side, the increasingly combative tone being taken by regulators. For the FCA, its comments (out of quotes and in the collective context) about how alarming it found Deutsche's errors, and for the European Securities and Markets Authority, its strenuous and belligerent insistence that it's done enough on reporting. Something to keep in mind.