The U.S. Commodity Futures Trading Commission (CFTC) has issued an Order settling charges against Merrill Lynch, Pierce, Fenner & Smith Incorporated (Merrill Lynch) for failing to diligently supervise its officers’, employees’ and agents’ processing of futures exchange and clearing fees charged to its customers from at least January 1, 2010 through April 2013.
Merrill Lynch is a division of Bank of America Corp, a CFTC-registered Futures Commission Merchant (FCM) and an approved swap firm. The bank neither admitted nor denied the findings in the Order.
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The CFTC found that Merrill Lynch’s fee reconciliation process for identifying and correcting discrepancies between the invoices from the exchange clearinghouses and the amounts charged to its customers had been faulty for more than two years. As a result, Merrill overcharged some clients and undercharged others. These fee reconciliations show that Merrill paid more than $318 million in exchange and clearing fees to the Chicago Mercantile Exchange and the Chicago Board of Trade during that time, but had unexplained excess fees of approximately $451,318 from 196 clients, according to the CFTC.
Additionally, the CFTC found that Merrill Lynch did not hire qualified personnel to conduct and oversee its fee reconciliations and did not provide any completed procedures manuals regarding fee reconciliations to its staff until at least April 2013. The Order also states that the procedures Merrill Lynch did have up until that time were viewed as ”not fit for purpose” because they were “fundamentally flawed.” Merrill Lynch also did not provide any meaningful training to employees regarding how to conduct fee reconciliations until 2013.
The CFTC Order requires Merrill Lynch to pay a $1.2 million civil monetary penalty and cease and desist from violating the CFTC regulation governing diligent supervision. The Order also requires Merrill Lynch to comply with undertakings that include, hiring an outside consulting firm to assist in training staff and reviewing and updating its current procedures regarding exchange and clearing fee reconciliations.