Missing the Goldman Facts: Goldman Sachs Fined by the FCA
April 17, 2019
2 min read
What's going on here?
US investment bank Goldman Sachs has been fined £34 million by the Financial Conduct Authority.
What does this mean?
The bank has been fined by the UK regulators as they were failing to report transactions correctly. Banks are required to provide information on transactions so that market abuse can be detected and investigated. These reports play a huge role in helping the FCA supervise conduct in the financial sector. A transaction report contains details like products traded, clients involved, and price among other things. Specifically, Goldman failed to comply with the European rules known as the Markets in Financial Instruments Directive (shortened to MiFID). MiFID was designed to make markets safer and more transparent across all of Europe. The FCA reported that Goldman failed to provide accurate and timely reports for 220 million transactions over the span of 10 years, and they wrongly reported transactions that didn’t need to be reported. The regulator fined the Swiss bank UBS for similar issues earlier this year, but for a lesser sum (only a measly £27 million).
What's the big picture effect?
What is interesting here is the relationship between the decisions of regulators and a companies public image. Aside from the economic cost, receiving a fine makes a company build a bad reputation. After this event, Goldman issued a statement saying that they “dealt with the issues proactively” and “made significant investments… to develop and enhance [its] reporting procedures.” The bank co-operated with the FCA, meaning that they received the maximum discount of 30% on the fine (which would have originally been £49m). As a result of this cooperation, and because of Goldman’s vow to improve its practices, the bank was able to somewhat soften the blow to its reputation. They achieved this by getting the FCA to provide a more favourable description of the bank’s conduct in its final public notice. This will undoubtedly reduce the damage that the fine could have otherwise had.
Limiting the damage to its reputation is especially crucial to Goldman at the moment. At the end of last year, Malaysia filed criminal charges against the bank due to a corruptions scandal. It was alleged that officials and employees were withdrawing money into personal accounts. This, coupled with the recent fine, highlights the importance of compliance with regulation.
This is the first time in 4 years that the FCA has issued fines for transaction penalties – and this is the largest fine to date. Harsher regulations for transaction reporting were brought in after the 2008 financial crisis in an attempt to avoid any such crisis in the future. Penalties like this illustrate these new, tougher rules.
It sends a message that all financial actors must follow the rules or suffer the consequences.
Report written by Elizabeth M
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