Vendor System Failure Results in Fine for Swap Dealer

A swap dealer settled charges with the CFTC for failing to retain audio files due to vendor system failures.

In an Order, the CFTC stated that the swap dealer used recording systems from two vendors to record calls made on mobile devices. The CFTC found that the swap dealer was unable to retain those files due to a system error.

As a result, the CFTC concluded that the swap dealer violated CEA Section 4s(f)(1)(C) ("Registration and regulation of swap dealers and major swap participants") and CFTC Rules 1.31(b)(2) ("Regulatory records; retention and production") and 23.202(a)(1) and (b)(1) ("Daily trading records").

To settle the charges, the swap dealer agreed to (i) cease and desist from further regulatory violations and (ii) pay a civil monetary penalty of $5,500,000.

Statements

CFTC Commissioner Kristin N. Johnson expressed concern regarding the frequency with which certain market participants, including those that "strongly influence industry best practices," repeatedly violate "well-established legal requirements." She argued that the CFTC must impose penalties that deter "repeat offenders" and prevent the perception that the penalty amounts are "the cost of doing business." Ms. Johnson pointed to the civil monetary amount of $5,500,000 in the case of the particular swap dealer which she said is "quite literally less than the profit [the swap dealer] can earn by the end of the day today."

CFTC Commissioner Caroline D. Pham dissented from the Order, arguing that it is "fundamentally unfair, unjust, and does not best serve the public interest." She stated that the CFTC's enforcement action demonstrates a "disturbing trend of 'examination by enforcement'" whereby the CFTC imposes "disproportionately high" penalty amounts for "one-off, non-material operational or technical issues with no misconduct, harm to clients, or financial losses."