The CFTC Cracks Down on Recordkeeping Failures

The Commodities Futures and Trade Commission (CFTC) recently issued an order against an introducing broker and a futures commission merchant that simultaneously filed and settled charges against the firms. The order requires them to pay a $20 million civil monetary penalty, cease and desist from further violations of recordkeeping and supervision requirements, and to engage in specified remedial undertakings.

The order found that from 2019 to the present, employees, including those at senior levels, communicated using unapproved communication channels, including personal text messaging and WhatsApp. The firms are required to maintain written communications related to their CFTC-registered businesses. These written communications generally were not maintained and preserved by the firms, and the firms would have needed to provide them promptly to the CFTC if and when requested per CFTC Regulations 1.31, 1.35 and 166.3 of the Commodity Exchange Act (CEA).

The order also found that the widespread use of unapproved communication methods violated the firms’ internal policies and procedures, prohibiting business-related communication from taking place via unapproved methods. Further, some of the same supervisory personnel responsible for ensuring compliance with policies and procedures used unapproved methods of communication themselves.

Crackdown on recordkeeping

This is just one instance of the CFTC’s crackdown on recordkeeping failures over the past year. Since December 2021, the CFTC has filed orders against 20 different financial institutions for the use of unapproved methods of communication and imposed $1.117 billion in civil monetary penalties for such violations. 

It should be noted that the Securities and Exchange Commission (SEC) also announced an order to file and settle charges against these firms and impose a civil monetary penalty for similar violations.

Our guidance

Based on these recent regulatory actions, financial firms should establish, and strictly enforce, policies and procedures related to the use of approved communication channels. Further, it is important that adherence and compliance with these policies be made by supervisory personnel of the firm as an example. We recommend the use of electronic communication surveillance tools to assist with the implementation of these policies and procedures and diligently review the output to determine if unapproved communications are being sent or received by employees.

Electronic communication surveillance tools can be used to review and archive approved communication methods and should be a standard component of a financial firm’s compliance program. However, identification of the potential use of unapproved devices could be more challenging. These reviews require a technology toolkit and surveillance staff who are educated in assessing potential items of interest.

How we help

ACA’s ComplianceAlpha^®eComms Solution is an integrated surveillance and investigations platform ranging from fundamental books and records archiving to the ongoing supervision of electronic communications. The eComms Surveillance Solution provides firms with an automated platform to surface potentially high-risk activities and behaviors, powered by an underlying eComms Archive Solution that captures and retains pertinent electronic and voice communications from across an organization.

ComplianceAlpha eComms is a Software as a Service (SaaS) solution that can be tailored to a firm’s particular compliance needs through a robust policy library which has been validated against multiple regulatory bodies, including the CFTC. Global firms can also conduct multilingual surveillance to detect and analyze content across multiple languages.

To learn more about ACA's eComms Solution, please reach out to your ACA consultant or contact us here.

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