HSBC fined $45 million for manipulative and deceptive trading
The Commodity Futures Trading Commission (CFTC) has issued an order against HSBC Bank USA, NA (HSBC), a provisionally registered swap dealer, for engaging in manipulative and deceptive trading practices related to swaps with bond issuers. The order also accuses HSBC of spoofing and failing in supervision and mobile device recordkeeping over an eight-year period.
As a result, HSBC has been fined $45 million and ordered to cease further violations of the Commodity Exchange Act’s provisions regarding anti-fraud, anti-manipulation, supervision, and recordkeeping. The bank must also undertake specific remedial actions. HSBC claims to have already implemented extensive measures to address the issues mentioned in the order.
The order reveals that HSBC violated the Commodity Exchange Act between March 2012 and July 2020. During this period, HSBC traders engaged in manipulative and deceptive trading practices, specifically in interest rate swaps, basis swaps, and swap spreads. Traders intentionally manipulated prices for swaps on screens controlled by interdealer broker firms during pricing calls with bond issuers. This conduct aimed to increase HSBC’s profitability at the expense of its counterparties
Director of Enforcement Ian McGinley said: “The Commission has zero tolerance for manipulative, deceptive or spoofing transactions, including by registered swap dealers. Registrants need to take their supervisory responsibilities seriously to prevent this conduct. Today’s order makes it crystal clear that the CFTC will continue to vigilantly investigate and prosecute disruptions to market integrity and fraud and endeavor to protect all market participants, including swap counterparties, from abusive practices.”
FINRA expels and fines member
FINRA (Financial Industry Regulatory Authority) has expelled broker-dealer SW Financial for multiple violations, including misrepresentations to customers regarding the sale of pre-initial public offering (pre-IPO) securities, churning customer accounts, and failure to supervise representatives. As part of a related settlement, SW Financial’s co-owner and CEO, Thomas Diamante, has been suspended for nine months followed by an additional three-month suspension in principal capacities, fined $50,000, and required to requalify through examination if seeking future registration with FINRA.
FINRA found that between January 2018 and December 2021, Diamante and SW Financial made material misrepresentations and omitted important information when selling pre-IPO securities, violating FINRA rules and Regulation Best Interest (Reg BI)’s Disclosure Obligation. SW Financial failed to disclose an undisclosed compensation agreement with the issuer, potentially influencing their recommendations. The firm sold these offerings to 171 investors, with undisclosed compensation totaling $2 million.
Additionally, SW Financial and Diamante failed to conduct adequate due diligence on the private offerings and did not verify the issuer’s access to the shares being sold, violating suitability rules and Reg BI’s Care Obligation.
Furthermore, between January 2016 and May 2019, SW Financial, through two former representatives, engaged in excessive trading (churning) in nine customer accounts, resulting in significant trading costs and realized losses for customers. The firm neglected to address red flags indicating excessive trading in these accounts.
SEC speech on global accounting standards
In a speech at an Institute of Chartered Accountants in England and Wales (ICAEW) event, SEC Commissioner Mark T Uyeda stressed the importance of high-quality accounting standards in the global context, particularly between the United States and the United Kingdom.
Uyeda emphasized that such standards provide investors with confidence in the accuracy, transparency, and comparability of financial statements. Without these standards, financial statements become unreliable, harming investors, companies, and markets. The speech acknowledges the role of the International Accounting Standards Board (IASB) and the need for the IFRS Foundation to ensure that the IASB receives the necessary resources and attention for its critical mission.
Uyeda also discussed the need to update accounting standards to accommodate evolving financial transactions and practices, specifically in relation to crypto assets. The Financial Accounting Standards Board (FASB) in the United States is working on updates to standards for accounting and disclosure of crypto assets. The proposed updates aim to measure certain crypto assets at fair value, present them separately on the balance sheet, and recognize changes in fair value in the income statement. Uyeda noted that these updates align US GAAP closer to IFRS in terms of accounting for crypto assets and suggested that the IASB should also evaluate updates to IFRS in this regard.
The speech also addressed the implications of accounting violations and how to prevent them. The SEC’s enforcement actions primarily focus on revenue recognition and internal control over financial reporting but the speech also noted the SEC’s authority to claw back bonuses and profits from executives in cases of material noncompliance with financial reporting requirements. Uyeda also mentioned recent rules proposed by the SEC regarding board member expertise in non-financial areas.
EBA publishes draft technical standards on the prudential consolidation of an investment firm group
The European Banking Authority (EBA) has published its draft Regulatory Technical Standards (RTS) on the scope and methods of consolidation of an investment firm group under the Investment Firms Regulation (IFR). These RTS detail the scope and methods for the prudential consolidation, as well as the methodology for the consolidation of capital requirements and the rules applicable for minority interest and additional Tier 1 and Tier 2 instruments issued by subsidiaries in the context of prudential consolidation. The aim of these RTS is to ensure prudential consolidation is carried out in a harmonized and consistent way. These RTS are the last regulatory products of the EBA Roadmap on investment firms, released in June 2020.