Wells Fargo Fined Over Controversial Burger King FX Trade

Already facing unfair dismissal actions and having paid one fine, Wells Fargo has been further sanctioned by the US Commodity Futures Trading Commission (CFTC) over its actions during the USD/CAD trade to hedge Tim Hortons’ purchase of Burger King.

Having paid the US National Futures Association $2.5 million in August, Wells Fargo has now been hit with a $14 million fine by the CFTC for failing to meet the standards required of a registered Swap Dealer. The bank also faces a series of court actions by former staff who were dismissed over their alleged conduct related to the transaction.

The CFTC says the bank failed to deal with a counterparty in a fair and balanced manner based on principles of fair dealing and good faith. It also failed to implement and monitor systems to ensure compliance with policies and procedures regarding communicating with counterparties in a fair and balanced manner. The order requires Wells Fargo to pay a civil monetary penalty of $10 million, restitution of $4.475 million, and to cease and desist from violating the CFTC’s business conduct standards.

“The CFTC’s business conduct standards are critical to ensuring our derivatives markets operate with trust and integrity,” says CFTC director of enforcement James McDonald. “The CFTC will continue to protect our markets through vigilant investigation and prosecution of misconduct.”

The order relates to a $4 billion deal that was to be priced at the weighted average spot rate, plus a forward adjustment, of the Canadian dollars Wells Fargo acquired in the spot market on that day. “Wells Fargo’s employees, including senior members of the FX management team, were aware that the deal required the bank to provide a weighted average rate based on actual spot trades,” CFTC states. “Wells Fargo, however, did not have a system in place to accurately track trades used to fill the counterparty’s order. As a result, Wells Fargo failed to communicate to its counterparty relevant information regarding the transaction in a fair and balanced manner. In particular, rather than calculate the agreed upon weighted average price, Wells Fargo instead picked a rate it believed would be in the range of the true weighted average and thus acceptable to the counterparty.

“Wells Fargo also provided the counterparty with a spreadsheet claiming to calculate the rate, but that did not, in fact, reflect actual trades because of its inability to track the relevant trades,” the Commission adds. “Furthermore, the order finds that, from August 2014 until May 2018, Wells Fargo failed to implement and monitor policies and procedures designed to ensure that it communicated with counterparties in a fair and balanced manner.”

Colin Lambert

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