Introduction

Recent regulatory disclosures highlight significant failures in MiFID II transaction reporting. A  Freedom of Information (FOI) request has shed light on the Financial Conduct Authority’s (FCA) supervisory efforts in this area. In contrast, the enforcement action against Infinox Capital Limited further illustrates the risks firms face when failing to meet their obligations. This article explores these developments and their implications for small and medium-sized enterprises (SMEs) in the investment sector.

Key Findings from the FOI Request

A Freedom of Information (FOI) request submitted to the FCA sought data on the extent of MiFID II transaction reporting failures across the industry.

The request

Notably, the FOI request asked:

  • the number of Section 166 skilled person reviews commissioned for reporting shortcomings;
  • how many firms failed to download Market Data Processor (MDP) extracts, used to reconcile reported data; and
  • the number of firms found not to have reported transactions at all.

The response

In response, the FCA stated that:

  • there are currently 2,871 authorised UK investment firms. However, the number of firms identified as executing entities in transaction reports submitted to the FCA is significantly lower;
  • many firms have not executed transactions in reportable financial instruments, but the FCA regularly assesses compliance to ensure adherence to reporting obligations;
  • in 2024 alone, the FCA assessed 185 instances of potential unreported transactions under MiFID; and
  • the FCA utilises multiple intelligence sources, including suspicious transaction and order reports, to identify firms that may have executed transactions without proper reporting.

The Infinox Case: A Regulatory Warning

The FCA recently issued a Final Notice to Infinox Capital Limited, imposing a financial penalty of £99,200 for MiFID II transaction reporting failures between October 2022 and March 2023. The firm failed to report 46,053 transactions executed via a corporate brokerage account, representing 60% of its single-stock CFD business.

Key Regulatory Concerns in the Infinox Case

  • Failure to Submit Reports: Infinox did not report any transactions for its single-stock CFD desk during the relevant period.
  • Delayed Self-Disclosure: The FCA identified the issue in May 2023, but Infinox had already been aware of the failure since March 2023, failing to proactively notify the regulator.
  • Weak Internal Controls: Reporting compliance was dependent on a single individual manually identifying reportable instruments, highlighting inadequate oversight.
  • Regulatory Penalty Calculation: The FCA attributed a penalty value of £2 per missing transaction report, which reflects the severity of non-compliance. Firms must be aware that failure to report transactions can lead to significant cumulative fines, highlighting the importance of robust reporting systems, with the total fine initially calculated at £141,800, before a 30% settlement discount was applied.

Implications for SMEs in the Investment Sector

  1. Continued Scrutiny on Reporting Failures

The FOI request and Infinox case demonstrate the FCA’s continued emphasis on transaction reporting.

  1. The Importance of Data Reconciliation

The FCA’s interest in whether firms download and reconcile MDP extracts suggests an expectation that firms proactively monitor and correct reporting errors. SMEs must ensure they implement regular reconciliation processes to avoid penalties.

  1. Proactive Engagement with Regulators

Infinox’s failure to self-disclose its reporting failure worsened its regulatory outcome. Firms must engage with regulators transparently and promptly disclose compliance breaches to mitigate enforcement risks.

  1. Internal Controls and Automation

Infinox’s reliance on manual reporting processes exposed a critical weakness. To ensure accurate and timely transaction reporting, SMEs should consider automation and internal controls.

How C&G Regulatory Solutions Can Help

C&G Regulatory Solutions works closely with a leading technology vendor to deliver comprehensive transaction reporting audits, ensuring firms meet MiFID II compliance standards. Our services include:

  • Transaction Reporting Audits: Identifying gaps in MiFID II and EMIR trade reporting through advanced technology-driven solutions;
  • Regulatory Health Checks: Ensuring your firm meets FCA expectations on reporting accuracy;
  • Automated Reporting Solutions (through an introduction to a specialist vendor): Implementing best-in-class technology for seamless compliance; and
  • Regulatory Liaison Support: Helping firms engage proactively with the FCA to address reporting concerns before enforcement actions arise.

With regulatory scrutiny intensifying, partnering with a trusted compliance advisor ensures firms avoid costly penalties and reputational damage. Please contact us today to set up an initial consultation.

Conclusion

The FCA’s actions highlight the serious consequences of failing to meet MiFID II transaction reporting requirements. SMEs in the investment sector must take proactive steps to enhance compliance, including regular data reconciliation, robust internal controls, and timely regulatory engagement. The Infinox case starkly warns of the financial and reputational risks associated with non-compliance.

References

  1. FCA Final Notice: Infinox Capital Limited, 27 January 2025.
  2. Freedom of Information request on MiFID II transaction reporting failures.