July 28, 2021
Estimated reading time: 3 minutes
ESMA: Fines for MiFID II non-compliance quadruple to €8.4 million in 2020
European financial regulator, the European Securities and Markets Authority (ESMA) has published its third annual sanctions and measures report with regard to MiFID II. The report, which explores sanctions made by member states for MiFID II failings across 2020, shows that fines have risen dramatically in both volume and amount, more than quadrupling in one year.
What does ESMA’s report show?
Under Article 71(4) of the Directive (EU) No 2014/65/EU on Markets in Financial Instruments (MiFID II), member states are required to make annual disclosures to ESMA with aggregated information about all sanctions that have been issued and all measures that have been imposed for MiFID II non-compliance.
Across 2020, national competent authorities (NCAs) issued 613 sanctions for MiFID II related failings, amounting to a total of €8.4 million. Of the 30 member states regulated by ESMA, 23 issued fines.
The number of sanctions issued in 2020 stands at 542 more than the 71 fines in 2019, which were issued across only 15 member states. However, the real difference lies in the value of the fines issued, which rose from €1.8 million to €8.4 million – more than quadrupling in one year alone.
Conclusions should be drawn “cautiously”
ESMA’s report is now in its third year, however the regulator warns against making broad or definitive conclusions about the state of play with regard to MiFID II compliance.
This is the first year though in which we are able to start seeing trends emerge. As ESMA points out, owing to the time that the enforcement process takes from beginning to end, paired with the divergence between the requirements of the MiFID II framework and national legislation on sanctions and measures – the data has not previously enabled them to see clear trends. Now in its third year, trends are emerging – and the picture is not necessarily a positive one.
ESMA has made it clear that the number of imposed sanctions and measures imposed over the last three years should be read “cautiously”. With that in mind, I won’t leap to conclusions. However, one cannot help but notice that MiFID II compliance looks to be getting worse rather than better.
MiFID II was introduced with transparency and harmony in mind. However, these noble goals don’t necessarily mean plain sailing for the compliance team. While MiFID II aims to restore confidence in a post-financial crisis world, it has inevitably (and understandably) added layers of complexity to compliance.
Financial organisations across the bloc are required to capture vast amounts of data across their firms and then present that data in detailed reports – often at the touch of a button. Add this to the almost unsurmountable numbers of regulatory obligations and it’s relatively easy to see how firms are falling behind with MiFID II compliance and reporting.
ESMA’s report is only the latest in a series of messages from the regulator that would suggest firms are struggling to manage reporting requirements. Earlier this month, ESMA reported that it had fined DTCC Derivatives Repository €408,000 for failing to provide regulators with “direct and immediate access to relevant data” under the European Market Infrastructure Regulation (EMIR), among other things.
How can we solve this? I suppose there are a number of solutions. Firstly, to invest in automated compliance tools and RegTech solutions that can generate accurate reports in an instant. This frees up time to allow highly-talented compliance officers to get back to assessing and implementing emerging regulations – rather than generating manual reports in endless Excel spreadsheets.
The second option – which would complement the first – is to create a global reporting standard so that firms know not only what they need to do, but how to do it. Time and again I have heard grumblings about conflicting regulatory standards around MiFID II, national legislation and other requirements. A global regulatory standard would set the tone and remove confusion, so compliance can get on with complying – rather than working out how to comply.
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