On September 27, 2022, the Commodity Futures Trading Commission (“CFTC”) announced the settlement of charges against the swap dealer (“SD”) and futures commission merchant (“FCM”) affiliates of 11 financial institutions totaling more than $710 million. The action, filed and settled on the same day and brought in tandem with a related Securities and Exchange Commission (“SEC”) action, charged the institutions with failing to meet certain CFTC recordkeeping requirements. Specifically, the Commission determined that the SDs / FCMs failed to stop their employees from communicating internally and externally using unapproved communication methods such as WhatsApp or Signal.

Registrants are required under both the Commodity Exchange Act (“CEA”) and CFTC Regulations to meet recordkeeping and supervision requirements. For example, the CEA requires swap dealers to keep, “books and records of all activities related to its business as a swap dealer … in such form and manner and for such period as may be prescribed by the Commission by rule or regulation.”^[1] These records must also be kept, “open to inspection and examination by any representative of the Commission.”^[2] Critically, the CFTC determined that the firms, including senior personnel, failed to maintain and preserve written communications and therefore could not be produced upon request. 

In each individual order, the Commission also found that the firms violated their own internal communications policies and procedures. The orders show that while setting internal policies to supervise and maintain business-related records is a useful starting point, more must be done to ensure recordkeeping compliance. Compliance and legal personnel should work to confirm that firm policies requiring supervised communications are being followed. Please reach out to K&L Gates’ derivatives team with any questions on these enforcement actions or to discuss best practices regarding communication methods in today’s continuously connected world.

FOOTNOTES

[1] CEA Section 4s(f)(1)(C).

[2] 7 U.S.C. § 6s(f)(1)(C); see also Section 4s(g)(1) and (3) of the Act, 7 U.S.C. § 6s(g)(1), (3).