FCM Settles Charges for AML, Trading Limits and Recordkeeping Violations

A futures commission merchant ("FCM") settled CFTC charges for failing to (i) implement an adequate AML program, (ii) impose risk-based trading position limits on a customer's accounts and (iii) maintain customer records for a substantial period of time.

In the Order, the CFTC found that the FCM allowed a customer to take speculative trading positions that were apparently far beyond the customer's financial capability. (The customer pled guilty to related criminal fraud charges and is the subject of a pending CFTC enforcement matter.) The CFTC said that the customer made margin payments of approximately $42 million, an amount that exceeded the customer's assets as shown in the credit information that the customer provided to the FCM.

The CFTC also found that the FCM ignored recommendations to improve its AML procedures and did not provide sufficient resources to its AML officer despite her "numerous" requests for resources, including for an additional hire and software. The CFTC found that the FCM took more than nine months to produce pre-trade communications records requested by the CFTC and did not provide the documents in the requested format. The CFTC also found that the FCM did not maintain any records before September 2019 for the customer, which represented more than two years' worth of communications.

The CFTC determined that the FCM violated CEA Section 4g ("Reporting and recordkeeping"), CFTC Reg. 1.11 ("Risk Management Program for futures commission merchants"), Reg. 1.31 ("Regulatory records; retention and production"), Reg. 1.73 ("Clearing futures commission merchant risk management"), Reg. 42.2 ("Compliance with Bank Secrecy Act") and Reg. 166.3 ("Supervision").

To settle the charges, the FCM agreed to (i) cease and desist, (ii) a civil monetary penalty of $6.5 million and (iii) undertakings to improve its AML and recordkeeping controls.

Commissioner Christy Goldsmith Romero issued a statement urging harsher penalties in light of the alleged misconduct. Ms. Goldsmith Romero said that the FCM should have been required to admit to its illegal actions, and noted that she has identified a variety of circumstances in which heightened enforcement action is merited. Commissioner Kristin N. Johnson urged strengthened enforcement standards given the nature of the FCM's alleged misconduct.