CFTC Issues Fourth Penalty for Inaccurate Large Trader Reporting of Swaps

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On September 27, 2016, the U.S. Commodity Futures Trading Commission (“CFTC” or the “Commission”) issued a fourth penalty for violations of its Swaps Large Trader Reporting (“Swaps LTR”) rule.  This time, the penalty was imposed against Wells Fargo Bank, N.A. (“Wells Fargo”).  As we noted in July, the CFTC is continuing on its trend toward more aggressive enforcement of reporting violations, including violations of the particularly complex and technical Swaps LTR rule.  Compliance professionals should continue to review their reporting processes, including Swaps LTR, to confirm that they conform to the CFTC rules.

CFTC Swaps LTR Settlement History

 

Australia and New Zealand Banking Group (settled Sept. 17, 2015)

JP Morgan Chase Bank N.A. and JP Morgan Ventures Energy Corporation (settled Mar. 23, 2016)

Barclays Bank PLC (settled July 6, 2016)

Wells Fargo Bank, N.A. (settled Sept. 27, 2016)

Relevant Period

Mar. 1, 2013
through
Nov. 30, 2014
(approx. 21 months)

Mar. 1, 2013
through
Apr. 30, 2014 (approx. 14 months)

Mar. 1, 2013
through
Oct. 29, 2014
(approx. 20 months)

Mar. 1, 2013
through
Nov. 13, 2015
(approx. 32 months)

Reporting Violations (CFTC Regulations 20.4 and 20.7)

Yes

Yes

Yes

Yes

Recordkeeping Violations (CFTC Regulation 20.6)

No

No

Yes

No

Initial Self-Report

No
(investigation started through a special call)

No
(investigation started through a special call)

Yes

Yes

Cooperation

Yes

Yes

Yes

Yes

Civil Monetary Penalty

$150,000

$225,000

$560,000

$400,000

Wells Fargo Order

Despite cooperation, prompt remediation, and self-disclosure, the CFTC found that Wells Fargo violated Section 4s(f)(1)(A) of the Commodity Exchange Act (“CEA”) as well as CFTC Rules 20.4 and 20.7.  Its finding was based upon what it characterized as “multiple errors, including both missing data and data presented in a format inconsistent with CFTC requirements” for Swaps LTR. The Commission went on to provide a litany of reasons why Wells Fargo’s records were nonconforming, including:  (1) failure to “use the correct Reporting Entity Identifier;” (2) “improperly formatted entries in the ‘Nonstandard Swaption Indicator’ field;” and (3) “improperly formatted swaption expiration date values.”

Based upon its findings, the Commission imposed a $400,000 civil monetary penalty on Wells Fargo, in addition to undertakings.  The Order states that Wells Fargo has reviewed and is revising its Swaps LTR system to fix any errors.  Moreover, it requires Wells Fargo to continue monitoring its Swaps LTR system and provide monthly reports for one year to the CFTC’s Office of Data & Technology and/or the Division of Market Oversight.  Further, within 15 months, Wells Fargo must submit replacement data to the Commission for any previously submitted data that is missing, incomplete, or erroneous.

 

 

1 The CFATC press release can be found here.  The CFTC Order can be found here.

2 Our last Clients & Friends Memo on this issue can be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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