As financial regulators, we have a responsibility to guard against post-crisis complacency towards Dodd-Frank Act rules—complacency that exposes the U.S. financial system to systemic risk.  This case against JPMorgan Chase is an example of just such complacency, and I strongly support it.

This case holds accountable a bank that received extraordinary taxpayer funded bailouts via the Troubled Asset Relief Program (TARP) after its unchecked risk taking contributed to the financial crisis.  Our investigation found that JPM violated post-crisis Dodd-Frank Act requirements aimed at tougher regulation of over-the-counter (OTC) derivatives, known as swaps, which contributed to the financial crisis.  These violations are serious as these post-crisis requirements are designed to help regulators identify systemic risk.

The Fundamental Importance of Swap Data Reporting

September marked the 15^th anniversary of the collapse of Lehman, which set into motion the 2008 global financial crisis.  In 2009, G20 leaders gathered in Pittsburgh “to turn the page on an era of irresponsibility and to adopt a set of policies, regulations and reforms to meet the needs of the 21^st century global economy.”[1]  One of the commitments the G20 leaders made was to require reporting of OTC derivative contracts to trade repositories.[2]  The Dodd-Frank Act implemented this G20 commitment by requiring swap data reporting.

As regulators, we cannot allow our financial system to return to an era of irresponsibility when it comes to systemic risk.  Swap data reporting is fundamental to post-crisis financial regulation as one of the key tools to help regulators identify risk that could become systemic, and to conduct market surveillance.  Reporting rules bring transparency to a previously opaque market.  Without this transparency, regulators are blind to the same risks that contributed to the financial crisis.

A Strong Message of Accountability

This is the second CFTC case against JPM for violating swap data reporting rules.  This investigation uncovered that for more than five years, JPM did not report 40 million swaps as required by law.  According to the defendant, its violations of the law stemmed from multiple problems with JPM’s reporting systems and software.  However, JPM is ultimately responsible for its compliance with the law through its systems and software.

The Commission is sending a strong message of public accountability and deterrence by requiring JPM to admit its wrongdoing, which the CFTC did not require in its previous settlement with JPM for swap data reporting violations in July 2022.  I have advocated for the CFTC to require more settling defendants to admit their wrongdoing, especially when they are repeat offenders.[3]  In my two decades as a law enforcement official, I have observed greater deterrent value when defendants are required to admit their wrongdoing, particularly when combined with a penalty (in this case $15 million).

For large Wall Street banks with significant resources that can afford to pay penalties, a regulator requirement for banks to admit their wrongdoing in settlements carries collateral consequences that banks should take seriously.  Requiring defendants who settle with the CFTC to admit their wrongdoing should put other Wall Street banks on notice that they can no longer expect to violate the law for years and then treat CFTC enforcement settlements as a cost of doing business.

It has been far too long since the Dodd-Frank Act swap data reporting rules have been in place for banks to keep breaking the law.  The stakes are too high for banks to become complacent.  They must be held accountable.  I commend the enforcement staff for their investigation.