On September 27, 2016, the U.S. Commodity Futures Trading Commission ("CFTC" or the "Commission") issued a fourth penalty for violations of its Swaps Large Trader Reporting ("Swaps LTR") rule1. This time, the penalty was imposed against Wells Fargo Bank, N.A. ("Wells Fargo"). As we noted in July, the CFTC is continuing on its trend toward more aggressive enforcement of reporting violations, including violations of the particularly complex and technical Swaps LTR rule.2 Compliance professionals should continue to review their reporting processes, including Swaps LTR, to confirm that they conform to the CFTC rules.
CFTC Swaps LTR Settlement History
| Australia and New Zealand Banking Group (settled Sept. 17, 2015) | JP Morgan Chase Bank N.A. and JP Morgan Ventures Energy Corporation (settled Mar. 23, 2016) | Barclays Bank PLC (settled July 6, 2016) | Wells Fargo Bank, N.A. (settled Sept. 27, 2016) | |
| Relevant Period | Mar. 1, 2013 through Nov. 30, 2014 (approx. 21 months) |
Mar. 1, 2013 through Apr. 30, 2014 (approx. 14 months) |
Mar. 1, 2013 through Oct. 29, 2014 (approx. 20 months) |
Mar. 1, 2013 through Nov. 13, 2015 (approx. 32 months) |
| Reporting Violations (CFTC Regulations 20.4 and 20.7) | Yes | Yes | Yes | Yes |
| Recordkeeping Violations (CFTC Regulation 20.6) | No | No | Yes | No |
| Initial Self-Report | No (investigation started through a special call) |
No (investigation started through a special call) |
Yes | Yes |
| Cooperation | Yes | Yes | Yes | Yes |
| Civil Monetary Penalty | $150,000 | $225,000 | $560,000 | $400,000 |
Wells Fargo Order
Despite cooperation, prompt remediation, and self-disclosure, the CFTC found that Wells Fargo violated Section 4s(f)(1)(A) of the Commodity Exchange Act ("CEA") as well as CFTC Rules 20.4 and 20.7. Its finding was based upon what it characterized as "multiple errors, including both missing data and data presented in a format inconsistent with CFTC requirements" for Swaps LTR. The Commission went on to provide a litany of reasons why Wells Fargo's records were nonconforming, including: (1) failure to "use the correct Reporting Entity Identifier;" (2) "improperly formatted entries in the 'Nonstandard Swaption Indicator' field;" and (3) "improperly formatted swaption expiration date values."
Based upon its findings, the Commission imposed a $400,000 civil monetary penalty on Wells Fargo, in addition to undertakings. The Order states that Wells Fargo has reviewed and is revising its Swaps LTR system to fix any errors. Moreover, it requires Wells Fargo to continue monitoring its Swaps LTR system and provide monthly reports for one year to the CFTC's Office of Data & Technology and/or the Division of Market Oversight. Further, within 15 months, Wells Fargo must submit replacement data to the Commission for any previously submitted data that is missing, incomplete, or erroneous.
Footnotes
1 The CFATC press release can be found here. The CFTC Order can be found here.
2 Our last Clients & Friends Memo on this issue can be found here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
