The US Commodity Futures Trading Commission (CFTC) has issued an order filing and simultaneously settling charges against BGC Financial a futures industry voice broker and registered futures commission merchant (FCM), for numerous supervision, reporting, and recordkeeping violations spanning over five years.
The order requires BGC to pay a $3 million civil monetary penalty and to comply with specified undertakings, including remediation and retention of an outside consultant to assess compliance, recommend improvements, and generate reports on its findings and remediation efforts. The order further requires BGC to submit these reports to the CFTC and to cease and desist from further violations.
“Today’s enforcement action highlights the importance of recordkeeping, supervision, and transparency in reporting to the Commission,” says James McDonald, director of enforcement at the CFTC. “These are fundamental requirements, which are necessary for the Commission to accomplish its mission to safeguard the integrity of our markets.”
The order finds that BGC failed to establish an adequate supervisory system and to diligently perform its supervisory duties with respect to its traditional and block trading futures brokerage businesses between 2014 and 2019. Among other things, the CFTC says BGC lacked adequate procedures or processes in such areas as the creation, maintenance, and retention of audit trail data and failed to follow its policies and procedures regarding brokers’ use of personal cell phones to conduct firm business. Also, in two instances, the Commission says BGC branch managers were unaware of their designation in BGC’s FCM Manual as the designated supervisory manager for several brokers at their respective branch. “BGC’s failure to supervise contributed to its other violations of its recordkeeping, reporting, and other obligations,” the CFTC says.
BGC had, the CFTC says, multiple voice recording or retention failures, resulting in its failure to capture verbal bids, offers, orders, and other important trade communications. For example, the CFTC says in 2016, BGC lost nearly four months of voice recordings for thousands of brokered block trades and took more than two months to complete an initial production of audit trail data for a sample of 100 block trades requested by the CFTC Division of Enforcement due to its difficulty identifying and compiling the audit trail.
The order finds that, upon learning of repeated voice recording and other recordkeeping failures, BGC failed to meaningfully alter its policies and procedures. It also finds that the firm failed to adequately disclose in its 2015 and 2016 chief compliance officer reports material non-compliance issues related to voice capture and retention and to sufficiently describe the connection of those issues to identified remediation efforts. As a result, the CFTC was unable to accurately evaluate the noncompliance issues and remediation efforts, it says.
The order further finds that BGC failed to notify the CFTC of numerous formal investigations by other regulatory bodies and was delinquent by months, and even years, in notifying the CFTC of other required events. For example, BGC failed to notify the CFTC of a Securities & Exchange Commission (SEC) investigation until more than four years after BGC was aware of it and only after a $1.25 million settlement was reached.