December 1, 2022

Volume XII, Number 335

Advertisement

December 01, 2022

Subscribe to Latest Legal News and Analysis

November 30, 2022

Subscribe to Latest Legal News and Analysis

November 29, 2022

Subscribe to Latest Legal News and Analysis
Advertisement

United States: CFTC Orders 11 Banks to Pay Over $710 Million for Illegal Use of Texting Apps

On September 27, 2022, the Commodity Futures Trading Commission (“CFTC”) announced the settlement of charges against the swap dealer (“SD”) and futures commission merchant (“FCM”) affiliates of 11 financial institutions totaling more than $710 million. The action, filed and settled on the same day and brought in tandem with a related Securities and Exchange Commission (“SEC”) action, charged the institutions with failing to meet certain CFTC recordkeeping requirements. Specifically, the Commission determined that the SDs / FCMs failed to stop their employees from communicating internally and externally using unapproved communication methods such as WhatsApp or Signal.

Registrants are required under both the Commodity Exchange Act (“CEA”) and CFTC Regulations to meet recordkeeping and supervision requirements. For example, the CEA requires swap dealers to keep, “books and records of all activities related to its business as a swap dealer … in such form and manner and for such period as may be prescribed by the Commission by rule or regulation.”[1] These records must also be kept, “open to inspection and examination by any representative of the Commission.”[2] Critically, the CFTC determined that the firms, including senior personnel, failed to maintain and preserve written communications and therefore could not be produced upon request. 

In each individual order, the Commission also found that the firms violated their own internal communications policies and procedures. The orders show that while setting internal policies to supervise and maintain business-related records is a useful starting point, more must be done to ensure recordkeeping compliance. Compliance and legal personnel should work to confirm that firm policies requiring supervised communications are being followed. Please reach out to K&L Gates’ derivatives team with any questions on these enforcement actions or to discuss best practices regarding communication methods in today’s continuously connected world.


FOOTNOTES

[1] CEA Section 4s(f)(1)(C).

[2] 7 U.S.C. § 6s(f)(1)(C); see also Section 4s(g)(1) and (3) of the Act, 7 U.S.C. § 6s(g)(1), (3).

Copyright 2022 K & L GatesNational Law Review, Volume XII, Number 276
Advertisement
Advertisement
Advertisement

About this Author

Cheryl L. Isaac Washington D.C. Investment Lawyer K&L Gates
Of Counsel

Cheryl Isaac is of counsel in the firm’s Washington office, where she advises clients on compliance with derivatives laws and regulations, including those promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act by the CFTC, SEC, Federal Reserve and other federal regulators. She represents banks, commodity trading firms, asset managers and other market participants (both buy-side and sell-side) in interest rate, commodities and FX derivatives transactions, and has significant experience negotiating cleared derivatives documentation and ISDA Master...

202-778-9089
Matthew J. Rogers Investment Management Attorney K&L Gates Boston, MA
Associate

Matthew Rogers is an associate in the firm’s investment management group. Mr. Rogers focuses his practice on advising investment advisers, open and closed-end investment companies, unregistered funds and other financial service providers.

He has experience drafting and reviewing registration statements, board materials and other regulatory and legal documentation for the formation, organization and ongoing operations of registered funds. He assists clients in obtaining regulatory relief from certain U.S. federal securities laws and resolving SEC staff comments on regulatory filings...

617-951-9147
Advertisement
Advertisement
Advertisement