These fines bring the total penalties imposed by the CFTC since December 2021 for firms’ use of unapproved communications methods to $1.124 billion.
The recordkeeping and supervision failures at both firms took place at least since 2019 and extended to the present day. The failures were firm-wide and involved employees at all levels of seniority – including supervisors responsible for preventing this very type of misconduct.
The CFTC investigation involved a sampling analysis of the personal devices of a number of employees at each firm. This revealed that all taking part in the sampling had violated the firm’s policies and procedures and had used personal text messages and other unapproved channels to communicate with co-workers and market participants.
Business-related, but not captured
The analysis also revealed that numerous other employees of the firms conducted firm business via unapproved communication methods. In other words, those employees whose communication was scrutinized as part of the sampling analysis implicated numerous other firm employees with whom they were in contact about firm business via these unapproved communication methods.
Because the messages were sent using the unapproved communication methods, including WhatsApp, they were not monitored or archived and led to each of the firms failing to capture and maintain “hundreds if not thousands of business-related communications”, including those connected with the commodities business Oppenheimer and the swaps business at US Bank.
Both firms have also been subject to recent related actions by the SEC that imposed monetary penalties for recordkeeping and supervision violations.
Supervisory personnel involved
The CFTC said that supervisory personnel responsible – even some responsible for ensuring compliance – were also using unapproved methods to conduct business-related discussions in some instances.
Rob Mason, director of regulatory intelligence at Global Relay, noted that it was interesting that there was “no suggestion of remediation, bearing in mind the first large recordkeeping fine [that initiated this flurry of enforcement activity] was in December 2021”, while the conduct here dated back to 2019. He also pointed out that the fact that “swap dealers are now falling foul of the rules suggests more actions and fines still to come”.
GRIP comment
The CFTC pointedly mentions that the “use of unapproved communication methods was not hidden within the firm”.
This, and the involvement of senior-level employees and, in particular, supervisors responsible for a firm’s adherence to rules, are always going to be an aggravating factor when it comes to the regulator’s view of compliance breaches.
In October, the CFTC fined Interactive Brokers, a multinational brokerage that maintains the largest electronic trading platform in the US, for similar archiving, monitoring and supervisory lapses.
At the SIFMA annual conference this week, held in Florida, many of the representatives from the largest financial services regulatory agencies, plus industry practitioners, referenced the large number of enforcement actions in this arena. They emphasized the need for businesses to swiftly address the issue of managing and enforcing their own communications and archiving policies, to use disciplinary measures and messages from leadership as a deterrence strategy, and to remember that technology is readily available and ever-evolving in this space – such that lacking a tech solution is no excuse any longer.
• We keep a regularly-updated list of recordkeeping fines and actions since 2022.
