CFTC Fines Six Banks for Reporting Failures

The US Commodity Futures Trading Commission (CFTC) has issued six banks with regulatory orders over reporting failures.

The six banks; Bank of New York Mellon, HSBC, Natwest Markets, Northern Trust, PNC Bank and Societe Generale were collectively fined more than $6 million over the failures – Northern Trust and SocGen were also charged with failure to supervise in connection with the reporting failures.

HSBC was also charged with violating swap-dealer risk management regulations, the first time the CFTC has brought such an action.

BNY Mellon was fined $750,000 for failing to correctly report hundreds of thousands of swap transactions to a swap data repository as required by regulations. The failures included failing to correctly report tens of thousands of FX swaps from December 31, 2012 through July 2, 2018, failing report tens of thousands of swap transactions with BNYM affiliates and, from December 31, 2012 through at least December 31, 2018, failing to correctly report bunched trades (transactions with investment managers acting as agents for one or more principals).

HSBC was fined $650,000 for its risk management failures, the order specifically finds that from January 2013 until November 2015, the bank did not designate a swap dealer governing body or senior management to fulfil the requisite oversight duties under CFTC regulations. Relatedly, with respect to its swap dealing activities, HSBC failed to separately consider certain risks associated with its swap activities; properly approve its risk tolerance limits, risk management program and policies and procedures, and trading policies; and properly review its quarterly risk exposure reports, annual audits of its risk management programme, and its business continuity and disaster recovery plan.

Natwest was fined $850,000 for submitting Large Trader Reports (LTRs) that contained millions of errors in required data fields. These errors fell into dozens of categories, including missing data presented in a format inconsistent with CFTC requirements.

Northern Trust was hit with a $1 million fine for failing to correctly report hundreds of thousands of swap transactions to a swap data repository. CFTC says these swap reporting violations resulted from Northern Trust’s failure to adequately supervise its swap dealer. It adds that contributing to the failure to supervise was that Northern Trust repeatedly hired compliance personnel for the swap dealer who lacked the specific technical expertise necessary to ensure swap dealer compliance.

PNC Bank was fined $300,000 because it failed to properly report legal entity identifiers (LEIs), primary economic terms, and continuation data to its swap data repository (SDR); failed to file LTRs for its physical commodity swaps; and failed to timely report certain trades to its SDR.

Finally, SocGen is $2.5 million lighter in the pocket after CFTC found that the bank failed to comply with its swap data reporting obligations as a swap dealer, failed to implement required policies and procedures, and related supervision failures. The order finds that the bank’s swap data reporting failures were “widespread and systemic”, and occurred in all asset classes. It further finds that SocGen failed to implement policies and procedures reasonably designed to obtain and record facts regarding whether its swap counterparties were US persons, or a conduit affiliate or guaranteed affiliate of a US person, and did not have an effective system to supervise certain activities related to its business.

“Accurate reporting is essential to effective fulfillment of the regulatory functions of the CFTC, including meaningful surveillance and enforcement programs,” says CFTC director of enforcement James McDonald.  “As these actions show, the CFTC will continue to vigorously enforce reporting requirements. The CFTC will also take appropriate action where reporting failures are occurring as a result of serious supervisory failures.”

On the HSBC charges, McDonald says, “The Commission’s swap-dealer risk management rules are designed to monitor and regulate the systemic risk endemic to the swaps market. At the heart of these regulations is the requirement that swap dealers separately consider the risks unique to swaps as an asset class, separate from their other businesses. This is the first action the CFTC has brought regarding violations of these particular swap-dealer risk management regulations, and the Commission will continue to focus on enforcing these critical requirements.”

Colin Lambert

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