CFTC Charges Swap Dealer with Reporting Failures
The CFTC simultaneously filed and settled charges against a swap dealer for failing to report certain swap transaction information properly. The order also alleges violations of supervision requirements by the swap dealer.
In particular, the CFTC order alleges that the company failed to report cancellations of swap transactions properly, which resulted in "between tens of thousands and hundreds of thousands" of reporting violations, errors and omissions in its swap reporting. In connection with these violations, the CFTC found that this failure, coupled with the failure by the firm to respond adequately to the problems, resulted in supervisory violations.
The CFTC charged the firm with violations of Regulations 43.3(a), 45.4(a), 45.14(a) and 23.602 and, as a result, imposed a civil monetary penalty of $2.5 million and required various remedial and compliance undertakings. This was the CFTC's first enforcement action against a firm for violation of Parts 43 and 45 of the CFTC rulemaking.
Commentary
The CFTC order seems to be focused on the operational and supervisory issues rather than the actual reporting violations (note that the CFTC did not impose recordkeeping violations, which suggests that the issue was not that the firm failed to collect the relevant data). In particular, the CFTC observed that the firm (i) "failed to timely investigate" certain swap cancellation messages that were either not received or not acknowledged by the swap data repository ("SDR"); (ii) had "technology-related issues," and (iii) "[s]ignificantly, was aware of the problems" and did not "diligently prioritize resolution of those issues or work with the SDR to address the issues in earnest" until it was notified of the CFTC investigation (emphasis supplied).
Regarding point (iii): it seems surprising that the CFTC would fault a firm for how "earnestly" it responded to the reporting issue (which may or may not have been related to issues at another CFTC-regulated entity; i.e., the SDR), given the massive amount of new compliance requirements imposed by the CFTC on swap dealers during the relevant time period.