The Commodity Futures Trading Commission today issued orders simultaneously filing and settling charges against swap dealer and futures commission merchant (FCM) affiliates of 11 financial institutions for failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.
The settling registrants admit the facts detailed in the orders (with Bank of America and Nomura neither admitting nor denying certain specific findings of the Division of the Enforcement’s (DOE) investigation), are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings.
The settling swap dealers and FCMs and their civil monetary penalties are:
- Bank of America (Bank of America, N.A.; 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 (Cantor Fitzgerald & Co.), $6 million
- Citi (Citibank, N.A.; Citigroup Energy Inc.; and Citigroup Global Markets Inc.), $75 million
- Credit Suisse (Credit Suisse International and Credit Suisse Securities (USA) LLC), $75 million
- Deutsche 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, N.A.), $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 supervision requirements ensure the safety and integrity of the U.S. derivatives markets and protect customers and market participants,” said Chairman Rostin Behnam. “As demonstrated today, the Commission will vigorously pursue registrants who fail to comply with their core regulatory obligations and hold them accountable.”
“Recordkeeping requirements are key to the Commission’s oversight of registrants and a registrant’s disregard of its obligations threatens the Commission’s ability to effectively and efficiently conduct examinations and investigations,” said Acting Director of Enforcement Gretchen Lowe. “The Commission continues to focus on the importance of recordkeeping, supervision and other regulatory obligations. Registrants and other market participants subject to the federal commodities laws and regulations are encouraged to examine their own internal controls and supervision to ensure they are in compliance.”
Each order finds that the swap dealer and/or FCM in question, for a period of years, failed to stop its employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text, WhatsApp or Signal. The firms were required to keep certain of these written communications because they related to the firms’ businesses as CFTC registrants. The firms generally did not maintain and preserve these written communications, and therefore could not provide them promptly to the CFTC when requested.
Each order further finds the widespread use of unapproved communication methods violated the swap dealers’ and/or FCMs’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.
Case Background
The orders find, with respect to several of the registrants, that DOE became aware during investigations into certain trading at the institutions that the institutions’ traders had been using unapproved communication methods on their personal devices for business-related communications. Following a review, each firm acknowledged to CFTC staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.
As a result of each registrant’s failure to ensure that its employees—including supervisors and senior-level employees—complied with communications policies and procedures, each registrant failed to maintain hundreds if not thousands of business-related communications, including communications in connection with its commodities and swaps businesses, and thus failed diligently to supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.
Related Civil Action
The Securities and Exchange Commission (SEC) today announced entry of orders filing and settling charges against several financial institutions and imposing civil monetary penalties for related recordkeeping and supervision violations.
The DOE staff members responsible for these actions are James Wheaton, Devin Cain, Jack Murphy, Benjamin J. Rankin, Jake Mermelstein, Trevor Kokal, (and former staff members Candice Aloisi, Gabriella Geanuleas, and Gates Hurand); Alejandra de Urioste, R. Stephen Painter, Jr., Lenel Hickson, Jr, and Manal M. Sultan.
