Not two months ago, I issued a statement announcing that the Commodity Futures Trading Commission (CFTC) had surpassed $1 billion in civil monetary penalties imposed on financial institutions that failed to comply with CFTC recordkeeping requirements through the use of offline, unmonitored communications channels.[1] Today, the CFTC has issued a twentieth order in this series of cases, this time against Interactive Brokers Corp. and Interactive Brokers LLC, which are registered with the Commission as an Introducing Broker (IB) and Futures Commission Merchant (FCM), respectively.

As in the prior cases, the order finds that Interactive Brokers employees made extensive and longstanding use of personal communication methods such as text message and WhatsApp to conduct business.  These offline channels were not monitored, recorded, or archived, and thus Interactive Brokers was unable to keep complete books and records of its business activities as required by the Commodity Exchange Act and CFTC Regulations.  The order also charges Interactive Brokers with a failure to supervise its commodities-related businesses to ensure compliance with relevant regulations. The order imposes a civil monetary penalty of $20,000,000.

Cases such as these are really about the culture of compliance at these companies, or lack thereof.  As was true in each of the prior resolutions, Interactive Brokers’ policies and procedures broadly forbade the use of personal cell phones and unapproved communications channels to conduct firm business.  Yet every single one of the Interactive Brokers employees whose personal devices were reviewed in the course of investigating these violations was found to have used offline channels to communicate with coworkers and other market participants. Moreover, business-related communications with coworkers were often with managers and senior supervisors.  In other words, the people whose job description included ensuring proper compliance with Commission regulations were not only tolerating prohibited technology use, but also engaging in it themselves.

Evolving technologies pose new risks and compliance challenges to registrants at increasing speeds.  Registrants must continuously update their policies and procedures as new contexts and obstacles arise.  But policies are not sufficient on their own. Companies must take seriously the need to create tone at the top that universally emphasizes the importance of compliance at all levels of an organization.  Without doing so, the compliance function will exist only on paper, as it apparently did in this case.  And once again I am reiterating that the Commission needs to think deeply about additional rules to deter this kind of misconduct in the future.

The Securities and Exchange Commission (SEC) also announced today the entry of an order settling equivalent recordkeeping and supervision charges against Interactive Brokers and imposing a civil monetary penalty.  I am heartened that this joint effort by the CFTC and SEC continues to send a strong message to the industry that we will cooperate to seek out this violative behavior and impose serious consequences.

To conclude, I commend the Division of Enforcement staff for working hard to investigate and run this case to ground, with special thanks to Devin Cain, Alejandra de Urioste, R. Stephen Painter, Jr., Lenel Hickson, Jr., and Manal M. Sultan.