October 1, 2019

CFTC Orders Six Financial Institutions to Pay Total of More Than $6 Million for Reporting Failures

Agency Charges First Ever Violation of Swap-Dealer Risk Management Regulations

Washington, DC – The U.S. Commodity Futures Trading Commission today announced that it issued orders yesterday against HSBC Bank USA, N.A., Société Générale International Limited, The Northern Trust Company, NatWest Markets Plc, The Bank of New York Mellon, and PNC Bank, National Association for reporting failures.  Société Générale International Limited and The Northern Trust Company were also charged with failing to supervise in connection with the reporting failures.  HSBC was also charged with violating swap-dealer risk management regulations, the first time the Commission has brought such an action.

“Accurate reporting is essential to effective fulfillment of the regulatory functions of the CFTC, including meaningful surveillance and enforcement programs,” said CFTC Director of Enforcement James McDonald.  “As these actions show, the CFTC will continue to vigorously enforce reporting requirements.  The CFTC will also take appropriate action where reporting failures are occurring as a result of serious supervisory failures.”

McDonald further commented on the HSBC matter, “The Commission’s swap-dealer risk management rules are designed to monitor and regulate the systemic risk endemic to the swaps market.  At the heart of these regulations is the requirement that swap dealers separately consider the risks unique to swaps as an asset class, separate from their other businesses.  This is the first action the CFTC has brought regarding violations of these particular swap-dealer risk management regulations, and the Commission will continue to focus on enforcing these critical requirements.”

Enforcement Action Against HSBC Bank USA, N.A.

On Monday, September 30, 2019, the CFTC filed and settled charges against HSBC Bank USA, N.A., a provisionally registered swap dealer, for failing to establish appropriate risk management systems for its swap activities or to properly report swap data in certain categories, for certain swap transactions, to a swap data repository.  The CFTC order imposes a $650,000 civil monetary penalty on HSBC, among other sanctions.  The order recognizes that the civil monetary penalty in this matter was reduced in light of HSBC’s cooperation and remediation.

With respect to risk management, the order specifically finds that from January 2013 until November 2015, HSBC did not designate a swap dealer governing body or senior management to fulfill the requisite oversight duties under CFTC regulations. Relatedly, with respect to its swap dealing activities, HSBC failed to:

• Separately consider certain risks associated with its swap activities;
• Properly approve its risk tolerance limits, risk management program and policies and procedures, and trading policies; and
• Properly review its quarterly risk exposure reports, annual audits of its risk management program, and its business continuity and disaster recovery plan. 

Pamela M. Geraghty of the Division of Swap Dealer and Intermediary Oversight and Meghan Tente of the Division of Market Oversight assisted with this matter.

The Division of Enforcement staff members responsible for this case are Michael Geiser, Peter Janowski, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan.

Enforcement Action Against Société Générale International Limited

On Monday, September 30, 2019, the CFTC filed and settled charges against Société Générale International Limited, a provisionally registered swap dealer, for failing to comply with its swap data reporting obligations as a swap dealer, failing to implement required policies and procedures, and related supervision failures.  The order finds that Société Générale International’s swap data reporting failures were widespread and systemic, and occurred in all asset classes and across its reporting obligations under the CEA and Parts 20, 43, 45, and 46 of the CFTC’s regulations.  The order further finds that Société Générale International failed to implement policies and procedures reasonably designed to obtain and record facts regarding whether its swap counterparties were U.S. persons, or a conduit affiliate or guaranteed affiliate of a U.S. person, and did not have an effective system to supervise certain activities related to its business.

The CFTC order imposes a $2,500,000 civil monetary penalty on Société Générale International and mandates its compliance with certain undertakings, including continuing its remediation efforts in relation to swap data reporting and updating the CFTC on its efforts and compliance.

The order recognizes that the Commission’s determination of the civil monetary penalty in this matter reflects a substantial reduction from the otherwise applicable penalty based upon Société Générale International’s self-reporting of violations to the Commission, its cooperation with the Division of Enforcement’s investigation, and its comprehensive remediation efforts, which included an analysis and identification of historical errors, implementation of a new swap data reporting architecture, and backreporting corrected data to a swap data repository.

The CFTC thanks and acknowledges the assistance of the National Futures Association with this matter.

The Division of Market Oversight staff members who assisted with this matter are David E. Aron, Thomas Guerin, Meghan Tente, and Owen Kopon.  The Division of Swap Dealer and Intermediary Oversight staff members who assisted with this matter are Rajal Patel and Pamela Geraghty.

The Division of Enforcement staff members responsible for this action are Alejandra de Urioste, Chris Giglio, Patryk J. Chudy, Lenel Hickson Jr., and Manal M. Sultan.

Enforcement Action Against The Northern Trust Company

On Monday, September 30, 2019, the CFTC filed and settled charges against The Northern Trust Company, a provisionally registered swap dealer, for numerous violations of the CEA and CFTC regulations relating to swap reporting under Parts 23, 43 and 45 of the CFTC regulations.  The order requires Northern Trust to pay a $1,000,000 civil monetary penalty, among other sanctions.

According to the order, over a period from 2013 through at least 2018, Northern Trust failed to correctly report hundreds of thousands of swap transactions to a swap data repository as required by the CEA and CFTC regulations.  These swap reporting violations resulted from Northern Trust’s failure to adequately supervise its swap dealer.  Contributing to the failure to supervise was that Northern Trust repeatedly hired compliance personnel for the swap dealer who lacked the specific technical expertise necessary to ensure swap dealer compliance.

The order recognizes Northern Trust’s substantial cooperation during the Division of Enforcement’s investigation, and remediation in the form of a substantially reduced civil monetary penalty.

The Division of Enforcement staff members responsible for this action are Jason T. Wright, Patricia Gomersall, Luke B. Marsh, and Paul G. Hayeck. 

Enforcement Action Against NatWest Markets Plc

On Monday, September 30, 2019, the CFTC filed and settled charges against NatWest Markets Plc, formerly The Royal Bank of Scotland plc, a provisionally registered swap dealer, for failing to comply with its obligations to submit to the Commission accurate large trader reports (LTRs) for physical commodity swap positions, as required under Part 20 of the Commission’s regulations.  According to the order, all or nearly all of the LTRs NatWest submitted to the Commission from July 2012 to June 2017 contained inaccuracies. 

The order specifically finds that from July 2012 to June 2017, NatWest submitted LTRs that contained millions of errors in required data fields.  These errors fell into dozens of categories, including missing data presented in a format inconsistent with CFTC requirements.

The CFTC order imposes an $850,000 civil monetary penalty on NatWest, among other sanctions.  The order recognizes that the civil monetary penalty was reduced in light of NatWest’s cooperation and substantial remediation.  

The Division of Market Oversight staff members who assisted with this matter are Owen Kopon, Kristin Liegel, and Jennifer Newman.

The Division of Enforcement staff members responsible for this case are Gabriella Geanuleas, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan. 

Enforcement Action Against The Bank of New York Mellon

On Monday, September 30, 2019, the CFTC filed and settled charges against The Bank of New York Mellon, a provisionally registered swap dealer, for numerous violations of the CEA and CFTC regulations relating to swap reporting.  BNYM is the world’s largest custody bank and asset servicing company.  The order requires BYNM to pay a $750,000 civil monetary penalty, among other sanctions.  The order recognizes BNYM’s substantial cooperation during the Division of Enforcement’s investigation of this matter and remediation in the form of a substantially reduced civil monetary penalty.

According to the order, from December 31, 2012 through at least 2018, BNYM failed to correctly report hundreds of thousands of swap transactions to a swap data repository as required by the CEA and CFTC regulations.  BNYM’s swap reporting failures included failing to correctly report tens of thousands of foreign exchange (FX) swaps from December 31, 2012 through July 2, 2018, failing report tens of thousands of swap transactions with BNYM affiliates and, from December 31, 2012 through at least December 31, 2018, failing to correctly report bunched trades (transactions with investment managers acting as agents for one or more principals).

The Division of Enforcement staff members responsible for this action are Jason T. Wright, Patricia Gomersall, A. Daniel Ullman II, and Paul G. Hayeck. 

Enforcement Action Against PNC Bank, National Association

On Monday, September 30, 2019, the CFTC filed and settled charges against PNC Bank, National Association (PNC), a provisionally registered swap dealer, for failing to comply with its swap reporting obligations as a swap dealer.  According to the order, PNC failed to properly report legal entity identifiers (LEIs), primary economic terms, and continuation data to its swap data repository (SDR); failed to file large trader reports for its physical commodity swaps; and failed to timely report certain trades to its SDR.  The CFTC order imposes a $300,000 civil monetary penalty on PNC, among other sanctions, for these reporting violations.

PNC’s reporting failures were in violation of the reporting requirements of Parts 20, 43, and 45 of the CFTC regulations.

The order recognizes PNC’s self-reporting before it knew the full extent of its violations and its full cooperation with the Division of Enforcement, the Division of Swap Dealer and Intermediary Oversight, and the Division of Market Oversight.  The order also recognizes PNC’s remediation of its swaps reporting issues both on an ongoing basis and with respect to historical reports, including transactions no longer on PNC’s books. 

Division of Market Oversight staff member Benjamin DeMaria and Division of Swap Dealer and Intermediary Oversight staff members Pamela M. Geraghty, Thomas J. Bloom, and Kurt J. Harms assisted in this matter.

The Division of Enforcement staff members responsible for this matter are Trevor Kokal, David C. Newman, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan.

-CFTC-