Goldman Sachs Faces Fine for Reporting & Trade Failures

Key Takeaways

• Goldman Sachs Settlement: Goldman Sachs has agreed to a $1.45 million fine and a censure for failing to meet regulatory reporting requirements, including issues with the Consolidated Audit Trail (CAT) and trade reporting.
• Reporting Failures: Between June 2020 and June 2023, the firm inaccurately reported data for 36.6 billion equity order events, resulting in significant discrepancies in its market surveillance submissions.
• Trade Reporting Issues: A system update in October 2021 led to the incorrect classification of over 6.9 million trades, impacting both internal records and customer-facing confirmations.
• Supervisory Lapses: Goldman Sachs failed to implement effective supervisory systems until March 2022, missing opportunities to catch reporting errors earlier.
• Broader Industry Implications: The case highlights the importance of robust internal controls, accurate reporting, and proactive supervision to avoid significant regulatory and reputational risks.

Deep Dive

Goldman Sachs has agreed to pay a $1.45 million fine as part of a settlement with FINRA, the industry's self-regulatory body, following multiple reporting failures and supervision lapses between 2020 and 2023. This settlement, which includes a censure, comes after the firm struggled to meet crucial regulatory requirements, notably around the Consolidated Audit Trail (CAT) and trade reporting, exposing gaps in its internal compliance systems.

Goldman Sachs, a long-standing member of FINRA since 1936, was found to have inaccurately reported data for a staggering 36.6 billion equity order events. Between June 2020 and June 2023, coding errors in the firm’s systems led to significant inaccuracies in the data sent to the CAT Central Repository, an essential tool used by FINRA to monitor and regulate market activity. The firm failed to include critical details in its reports, such as counterparty restriction handling instructions, which are vital for tracking trades and ensuring the integrity of market surveillance.

These issues didn’t go unnoticed for long, but they remained unresolved for far too long, demonstrating the firm’s failure to implement a system that could reliably flag and correct errors before they snowballed into regulatory violations.

Trade Reporting and Customer Confirmations

The CAT violations weren’t the only issue on Goldman’s plate. The firm also ran into trouble with trade reporting, a critical process under FINRA’s rules. In October 2021, a system update inadvertently changed the way the firm reported client orders, leading to over 6.9 million trades being inaccurately classified. This included orders that were supposed to be marked as principal trades but were mistakenly reported as agency trades.

This glitch didn’t just stop at internal records, it affected Goldman’s customer-facing operations as well. The firm issued over 370,000 inaccurate trade confirmations to clients, something that could easily lead to confusion and potential disputes regarding the terms of transactions.

Even after identifying the problems, Goldman Sachs faced another issue: inadequate supervision. Regulatory requirements, like those for CAT reporting, necessitate robust internal controls and periodic checks to ensure the accuracy of reported data. But, from June 2020 to March 2022, Goldman’s supervisory system didn’t include regular reviews to confirm the accuracy of the data it was submitting.

It wasn’t until March 2022 that the firm implemented more rigorous checks, but by then, the damage had been done.

The Settlement

As a result of these violations, Goldman Sachs has agreed to pay the $1.45 million fine, with $1.355 million directed to FINRA. The firm also accepts a censure, a significant reprimand that highlights the severity of its failures. Importantly, Goldman waived its right to claim an inability to pay the fine, which means the settlement will proceed without any delay.

While the fine may seem like a significant penalty, it serves as a cautionary tale for other firms. Compliance failures, no matter how inadvertent, can carry hefty consequences—not just in terms of fines but in the trust clients and regulators place in the firm’s ability to manage data, trades, and risk effectively.

Goldman Sachs’ case is a reminder that no firm (no matter how large or prestigious) is immune from regulatory scrutiny. As the financial industry becomes increasingly dependent on sophisticated surveillance tools like CAT, the need for accurate, timely, and comprehensive reporting becomes even more critical. Mistakes may happen, but they need to be caught early and fixed swiftly to avoid regulatory fallout.

The settlement also shows us the importance of proactive, effective supervision. A well-designed compliance system should flag potential issues before they snowball into violations. It’s not just about meeting minimum requirements, it’s about creating a culture of responsibility, where compliance isn’t a box to tick but a core part of the firm’s operations.

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