CFTC fines four financial institutions $185 million for recordkeeping and supervision violations…
The Commodity Futures Trading Commission (CFTC) has fined four financial institutions a total of $185 million for recordkeeping and supervision violations. The four institutions are:
- BNP Paribas (BNP Paribas S.A. and BNP Paribas Securities Corp.) – $75 million.
- Société Générale (Société Générale SA and SG Americas Securities, LLC) – $75 million.
- Wells Fargo (Wells Fargo Bank NA and Wells Fargo Securities LLC) – $75 million.
- Bank of Montreal (Bank of Montreal) – $35 million.
The CFTC found that the four institutions failed to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failed to diligently supervise matters related to their businesses as CFTC registrants.
Specifically, the CFTC found that the four institutions allowed their employees to use unapproved communication methods, such as personal text messages and WhatsApp, to communicate about business matters. This violated the institutions’ own policies and procedures, which prohibited business-related communication taking place via unapproved methods.
As a result of the institutions’ failures, they were unable to provide the CFTC with hundreds if not thousands of business-related communications, including communications in connection with their commodities and swaps businesses. This hindered the CFTC’s ability to regulate the institutions and protect market participants.
…and SEC fines 11 broker-dealers $289 million for recordkeeping violations
In an related civil action, the Securities and Exchange Commission (SEC) has also announced charges against the same entities plus a further seven broker-dealers for widespread and longstanding failures to maintain and preserve electronic communications. The firms agreed to pay combined penalties of $289 million and to implement improvements to their compliance policies and procedures. Its list of entities and fines is as follows:
- Wells Fargo Securities, LLC together with Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC – $125 million.
- BNP Paribas Securities Corp. and SG Americas Securities, LLC – $35 million.
- BMO Capital Markets Corp. and Mizuho Securities USA LLC – $25 million.
- Houlihan Lokey Capital, Inc. – $15 million.
- Moelis & Company LLC and Wedbush Securities Inc. – $10 million.
- SMBC Nikko Securities America, Inc. – $9 million.
As before, the SEC’s investigation found that the 11 firms allowed their employees to communicate about business matters through various messaging platforms on their personal devices, including iMessage, WhatsApp, and Signal. The firms did not maintain or preserve the substantial majority of these off-channel communications, in violation of the federal securities laws.
Compliance teams should take note of the CFTC’s and SEC’s findings and take steps to ensure that their institutions are compliant with recordkeeping and supervision requirements. These include:
- Reviewing and updating policies and procedures to prohibit the use of unapproved communication methods for business-related communications.
- Training employees on new policies and procedures.
- Investing in technology that will help to ensure that records are properly maintained and preserved.
By taking these steps, compliance teams can help to protect their institutions from the risks associated with recordkeeping and supervision violations.
Federal Reserve announces new supervision program for innovative banking services
The Federal Reserve has set up a a Novel Activities Supervision Program (Program) to enhance the supervision of novel activities conducted by banking organizations it supervises.
The idea behind the new Program is to ensure that banks engaging in innovative technologies and products are appropriately assessed for risks. The Supervision and Regulation letter announcing the news picks out four examples of activities intended to be covered by the new approach
- Complex, technology-driven partnerships with non-banks to provide banking services
- Crypto-asset related activities
- Projects that use distributed ledger technology with the potential for significant impact on the financial system
- Concentrated provision of banking services to crypto-asset-related entities and fintechs
The Program will work in partnership with existing Federal Reserve supervisory teams to monitor and examine novel activities conducted by supervised banking organizations. The Federal Reserve will notify in writing those supervised banking organizations whose novel activities will be subject to examination through the Program.
ACCC deputy chair offers useful ESG compliance advice
Catriona Lowe, Deputy Chair of the ACCC (The Australian Competition & Consumer Commission) spoke about corporate ESG claims at the General Counsel Summit on 8 August 2023.
Whilst acknowledging that the ACCC is not the regulator charged with ESG responsibility, Lowe noted that the ACCC’s competition and consumer protection tools can help companies evolve appropriate ESG policies. One of these tools is the ACCC’s draft guidance, recently issued, includes views on good practice when making ESG claims.
Lowe highlighted the key points from the guidance:
- make accurate and truthful claims;
- businesses should have evidence to back up their claims;
- businesses must not hide important information;
- businesses must explain any conditions or qualifications on your claims;
- business should avoid broad and unqualified claims;
- use clear and easy to understand language;
- visual elements should not give the wrong impression; and
- be direct and open about your businesses sustainability transition.
Lowe added: “We are currently engaging and consulting with businesses on if the eight principles that we’ve identified provide clarity for businesses and improve their confidence for making legitimate environmental and sustainability claims.
“I would encourage you treat these guidelines as guard rails for your business’ green claims.
“If you follow the eight principles, you can safely assume you’re on solid ground for making a genuine green claim.”
A selected summary of key developments for regulated financial institutions
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