Repeated failure to correctly report millions of swap transactions to a registered swap data repository has led to a fine for the the Bank of New York Mellon.
The Commodity Futures Trading Commission (CFTC) settled charges with the bank, which contains the swap dealing business of parent company Bank of New York Mellon Corp.
BNY Mellon was in violation of a prior CFTC order, the regulator said, and it failed to properly supervise its swap dealer business as required by CFTC regulations. The order imposes a $5m civil monetary penalty and reflects the self-reporting and significant cooperation and remediation in this matter.
Bank of New York Mellon decided on its own to retain an independent compliance consultant to review its compliance program, in addition to paying the civil penalty, the CFTC noted.
“BNY takes its regulatory responsibilities seriously and is pleased to have resolved this matter,” a spokesperson said in a statement.
E-comms and voice comms
From approximately 2018 through 2023, the CFTC alleged that BNY Mellon repeatedly failed to correctly report at least five million swap transactions and failed to properly supervise its swap dealer business with respect to swap data reporting.
Many of the reporting failures also constituted a violation of the CFTC’s September 2019 order against the bank, which required it to cease and desist from further violating some of the same sections of the regulations that are the subject of the current action.
“I commend [BNY Mellon] for its extensive cooperation, remediation, and decision to retain an independent compliance consultant to assist the bank in improving its compliance program and preventing the reoccurrence of misconduct.”
Ian McGinley, Director, CFTC Division of Enforcement
Citing a couple of examples of this alleged poor supervision, the agency mentioned its failure to monitor the e-communications of a small number of associated persons (APs) who were mistakenly placed in a surveillance queue in a jurisdiction other than their home jurisdiction, which prevented their communications from being flagged for surveillance by the APs’ supervisors.
And the business had no written policies and procedures in place, including use of a foreign lexicon, for monitoring the e-communications of its non-English speaking APs for compliance purposes.
The CFTC also said BNY Mellon’s supervisory system was inadequate or not performed diligently with respect to its swap data reporting obligations.
Cooperation and remediation
In October 2020, BNY Mellon self-reported to the Commission staff that it had failed to link bunched trade allocations to the parent bunched trades dating back to April.
In November 2023, it self-reported to the CFTC that it had failed to correctly report a trade party financial entity status, and its annual CCO reports thereafter disclosed and addressed remaining issues in the CFTC’s order.
It cooperated extensively and in a timely manner with Division of Enforcement staff throughout its investigation, “expending significant time and resources,” such as supplying detailed written summaries of each issue underlying the CFTC’s order.
“Overall, the transparency and responsiveness of BNYM and its counsel resulted in material assistance to the Division that expedited the Division’s investigation considerably and served to limit the time and resources expended by Division staff,” the CFTC said.
In addition to cooperation, BNY Mellon implemented remedial measures to correct the deficiencies in its swap data reporting obligations, enhance its compliance program and prevent the reoccurrence of misconduct. It also (as noted above) voluntarily engaged an independent compliance consultant to review its reporting compliance program and advise on continued improvements to its compliance program.
“Accurate reporting is a core pillar of the regulatory regime for swaps, and every individual data field matters,” CFTC Division of Enforcement Director Ian McGinley said.
“It is essential that swap dealers get this right. In that vein, I commend [BNY Mellon] for its extensive cooperation, remediation, and decision to retain an independent compliance consultant to assist the bank in improving its compliance program and preventing the reoccurrence of misconduct,” he added.
