The CFTC settled enforcement cases against six swap dealers that all involved reporting failures. In addition to the reporting failures, the CFTC charged (i) one of the six dealers with failure to supervise and (ii) another of the six dealers with risk management deficiencies.

The reporting violations covered a variety of issues, including (i) failure to properly report data, (ii) failure to report certain transactions, (iii) failure to report legacy swaps and (iv) large trader reporting violations.

The CFTC alleged that the swap dealer charged with violating Rule 23.600 ("Risk Management") did not (i) designate a governing body for purposes of designation as "senior management" under the rule or (ii) have risk management procedures or risk-tolerance limits separately considered by appropriate senior management.

To settle the charges, the dealers agreed to pay fines ranging from $650,000 to $2.5 million. In addition, certain of the dealers agreed to additional conditions as to remedial measures and continued cooperation with the CFTC.

Commentary

Nihal Patel

These enforcement actions are consistent with the CFTC's recent focus on improving the quality of reported data. The majority of the actions relate to straightforward failures to report certain required data or transactions. Two points stand out.

  • Severity of Problems. The CFTC seems to distinguish between technical and operational issues and what it sees as more systematic failures. The CFTC alleged one firm to have had "widespread and systemic" reporting failures. Not surprisingly, that firm was fined the highest amount among this group; however, even that higher number reflected, according to the CFTC, a "substantial reduction" based on the firm's self-reporting, cooperation, and comprehensive remediation efforts.

  • Personnel. The CFTC said that its charge of failure to supervise against one firm was influenced by the firm "repeatedly" hiring compliance personnel who lacked necessary technical expertise. In other words, the CFTC will look at, and consider in enforcement matters, whether sufficient resources (money, technology or expertise) are being devoted to compliance.

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