CFTC Orders 11 Financial Institutions to Pay More Than $710 Million for Record Keeping and Supervisory Failures Due to Widespread Use of Unapproved Communication Methods

washington d.c. The Commodity Futures Trading Commission today issued orders to file and simultaneously settle costs against swap brokers and affiliated futures brokers (FCMs) of 11 financial institutions for failing to maintain, retain or producing records that were required to be kept under CFTC record keeping requirements, and failing to diligently oversee matters related to their activities as CFTC registrants.

Settlement registrants admit the facts detailed in the orders (Bank of America and Nomura neither admitting nor denying specific findings of the Division of Enforcement’s (DOE) investigation), are ordered to cease and to refrain from further violations of record keeping and monitoring requirements, and are directed to engage in specified corrective actions.

Exchange Dealers and Settling FCMs and their Civil Monetary Penalties are:

  • Bank of America (Bank of America, NA; BofA Securities, Inc.; and Merrill Lynch, Pierce, Fenner & Smith Incorporated (which was registered as an FCM until May 2019 and is currently registered as an introducing broker)), $100 million
  • Barclays (Barclays Bank, PLC and Barclays Capital Inc.), $75 million
  • Cantor Fitzgerald (Singer Fitzgerald & Co.), $6 million
  • Town (Citibank, NA; Citigroup Energy Inc.; and Citigroup Global Markets Inc.), $75 million
  • Swiss credit (Credit Suisse International and Credit Suisse Securities (USA) LLC), $75 million
  • German Bank (Deutsche Bank AG and Deutsche Bank Securities Inc.), $75 million
  • Goldman Sachs (Goldman Sachs & Co. LLC f/k/a Goldman Sachs & Co.), $75 million
  • Jefferies (Jefferies Financial Services, Inc. and Jefferies LLC), $30 million
  • Morgan Stanley (Morgan Stanley & Co. LLC; Morgan Stanley Capital Services LLC; Morgan Stanley Capital Group Inc.; and Morgan Stanley Bank, NA), $75 million
  • nomura (Nomura Global Financial Products Inc.; Nomura Securities International, Inc.; and Nomura International PLC), $50 million
  • UBS (UBS AG; UBS Financial Services, Inc.; and UBS Securities LLC), $75 million

“The Commission’s recordkeeping and supervisory requirements ensure the safety and integrity of the US derivatives markets and protect clients and market participants,” said Chairman Rostin Behnam. “As demonstrated today, the Commission will vigorously pursue registrants who fail to comply with their fundamental regulatory obligations and hold them accountable.

“Record-keeping requirements are critical to the Commission’s oversight of registrants and failure by a registrant to comply with their obligations threatens the Commission’s ability to effectively conduct reviews and investigations,” said the director. acting app Gretchen Lowe. “The Commission continues to emphasize the importance of record keeping, supervision and other regulatory obligations. Registrants and other market participants subject to federal commodity laws and regulations are encouraged to review their own internal controls and oversight to ensure they are in compliance.

Each order finds that the swap broker and/or FCM in question, for several years, has not prevented its employees, including senior management, from communicating both internally and externally using communication methods unapproved, including messages sent by SMS, WhatsApp or Signal. The companies were required to retain some of these written communications because they related to the companies’ activities as CFTC registrants. Companies generally do not have maintain and retain these written communications, and therefore could not promptly provide them to the CFTC upon request.

Each order further concludes that the widespread use of unapproved methods of communication violated the internal policies and procedures of the swap dealers and/or FCMs, which generally prohibited trading communication by unapproved methods. Additionally, some of the same supervisory personnel charged with ensuring compliance with the firms’ policies and procedures have themselves used unapproved methods of communication to engage in commercial communications, in violation of firm policy.

Background to the case

The orders find, with respect to several of the registrants, that the DOE learned during investigations of certain transactions at the institutions that merchants at the institutions had used unapproved communication methods on their personal devices for business communications. . Following a review, each company admitted to CFTC staff that it was aware of the widespread and long-standing use by its employees of unapproved methods to engage in business-related communications.

Due to each registrant’s failure to ensure that their employees, including supervisors and senior managers, complied with disclosure policies and procedures, each registrant failed to maintain hundreds, if not thousands, of of commercial communications, including communications in connection with its products and trading business, and therefore failed to diligently supervise its activities as a registrant or registrants with the CFTC, in violation of the record keeping and supervision provisions of the CFTC.

Related Civil Action

The Securities and Exchange Commission (SEC) today announced the entry of orders for the filing and settlement of charges against several financial institutions and the imposition of civil monetary penalties for related recordkeeping violations and supervision.

The DOE staff responsible for these actions are James Wheaton, Devin Cain, Jack Murphy, Benjamin J. Rankin, Jake Mermelstein, Trevor Kokal (and former staff Candice Aloisi, Gabriella Geanuleas, and Gates Hurand); Alejandra de Urioste, R. Stephen Painter, Jr., Lenel Hickson, Jr, and Manal M. Sultan.

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