Central Bank fines fund €192,500 for failing to report financial contracts

The Central Bank has fined a fund called GlobalReach Multi-Strategy Irish Collective Asset-management Vehicle (Icav) €192,500 for failing to report derivative financial contracts it had entered into between 2018 and 2020.

This is the first monetary penalty the Central Bank has imposed on an investment fund to date.

Irish-domiciled funds have more than €3.8 trillion of assets under management.

European regulations covering financial derivatives – known as European Markets Infrastructure Regulations (Emir) – require details of any such contracts to be reported to a registered trade repository no later than the working day following the conclusion of the contract.

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GlobalReach Multi-Strategy Icav admitted that it failed to report 200,640 derivative trades entered into between January 2018 and May 2020 by one of its sub-funds.

The rules on derivatives reporting allow financial regulators to get a picture of often complicated contracts in the financial system as they keep a lookout for risks facing firms operating in the likes of international bond, equities and commodities markets.

Derivative contracts typically lack transparency as they are privately negotiated and any information on them is usually only available to the contracting parties. They create a complex web of interdependence which can make it difficult to identify the nature and level of risks involved.

The financial crisis demonstrated that such characteristics increase uncertainty in time of market stress and, accordingly, pose risks to financial stability, the Central Bank said.

“The reporting obligations under EMIR and other sectoral legislation increase transparency and enable the Central Bank to obtain a complete picture of each firm’s operations, to fully understand the risks facing firms operating in securities markets, and thereby to address systemic risk,” said Seána Cunningham, the Central Bank’s director of enforcement and anti-money laundering.

“Incomplete or inaccurate data actively hinders market monitoring processes and activities.”

The Central Bank has levied a total of over €404.7 million of fines on financial firms and entities since 2006, with the biggest penalties being imposed on banks for roles they played in the tracker-mortgage scandal.