Financial and Business News

BNY Pays High Price for Swap Slip-ups

Tuesday, 27/08/2024 | 06:17 GMT by Damian Chmiel
  • The bank was fined $5 million by CFTC for failing to correctly report millions of swap transactions.
  • The bank agreed to hire an independent compliance consultant as part of the settlement.
BNY Mellon

The Commodity Futures Trading Commission (CFTC) has ordered Bank of New York (BNY) to pay a $5 million civil penalty for repeatedly failing to report millions of swap transactions correctly and inadequately supervising its swap dealer business.

Bank of New York Mellon Fined $5 Million for Swap Reporting Failures

The enforcement action, announced yesterday (Monday), addresses violations that occurred between 2018 and 2023. During this period, BNY failed to accurately report at least five million swap transactions to a registered swap data repository, breaching both CFTC regulations and a prior order issued against the bank in 2019.

CFTC's Division of Enforcement Director Ian McGinley
CFTC's Division of Enforcement Director Ian McGinley

CFTC's Division of Enforcement Director Ian McGinley emphasized the importance of accurate reporting in the regulatory framework for swaps. “It is essential that swap dealers get this right,” he stated.

“In that vein, I commend BNY for its extensive cooperation, remediation, and decision to retain an independent compliance consultant to assist the bank in improving its compliance program and preventing the reoccurrence of misconduct,” McGinley added.

The order also highlights BNY's failure to supervise its swap dealer business properly. The bank lacked written policies or procedures to monitor voice communications of its associated persons (APs) and e-communications in languages other than English, which are necessary to ensure compliance with CFTC regulations.

As part of the settlement, BNY has agreed to retain an independent compliance consultant to review and advise on its compliance program. This decision and the bank's self-reporting and substantial cooperation with the investigation contributed to a reduced civil monetary penalty.

Wisconsin Man Fined $75,000 for Unregistered Commodity Trading Advisor Activities

In a separate action also on Monday, CFTC has ordered Mark Hendershott of Wisconsin to pay a $75,000 civil monetary penalty for operating as an unregistered commodity trading advisor (CTA).

According to the CFTC order, Hendershott provided hedging advice and trading services related to agricultural futures contracts to farmers without proper registration between May 2018 and June 2021. His activities included offering tailored advice on using futures contracts to hedge crop production and directly placing trades in clients' accounts.

The order states that Hendershott developed a client base by contacting prospective farmers and charged a flat fee for his services. He assisted clients in opening trading accounts and managed various aspects of those accounts, including fund transfers and margin issues.

The CFTC found that Hendershott met the criteria requiring CTA registration, as he held himself out as a CTA and provided commodity trading advice to more than 15 persons in a 12-month period while using interstate commerce to conduct his business.

The Commodity Futures Trading Commission (CFTC) has ordered Bank of New York (BNY) to pay a $5 million civil penalty for repeatedly failing to report millions of swap transactions correctly and inadequately supervising its swap dealer business.

Bank of New York Mellon Fined $5 Million for Swap Reporting Failures

The enforcement action, announced yesterday (Monday), addresses violations that occurred between 2018 and 2023. During this period, BNY failed to accurately report at least five million swap transactions to a registered swap data repository, breaching both CFTC regulations and a prior order issued against the bank in 2019.

CFTC's Division of Enforcement Director Ian McGinley
CFTC's Division of Enforcement Director Ian McGinley

CFTC's Division of Enforcement Director Ian McGinley emphasized the importance of accurate reporting in the regulatory framework for swaps. “It is essential that swap dealers get this right,” he stated.

“In that vein, I commend BNY for its extensive cooperation, remediation, and decision to retain an independent compliance consultant to assist the bank in improving its compliance program and preventing the reoccurrence of misconduct,” McGinley added.

The order also highlights BNY's failure to supervise its swap dealer business properly. The bank lacked written policies or procedures to monitor voice communications of its associated persons (APs) and e-communications in languages other than English, which are necessary to ensure compliance with CFTC regulations.

As part of the settlement, BNY has agreed to retain an independent compliance consultant to review and advise on its compliance program. This decision and the bank's self-reporting and substantial cooperation with the investigation contributed to a reduced civil monetary penalty.

Wisconsin Man Fined $75,000 for Unregistered Commodity Trading Advisor Activities

In a separate action also on Monday, CFTC has ordered Mark Hendershott of Wisconsin to pay a $75,000 civil monetary penalty for operating as an unregistered commodity trading advisor (CTA).

According to the CFTC order, Hendershott provided hedging advice and trading services related to agricultural futures contracts to farmers without proper registration between May 2018 and June 2021. His activities included offering tailored advice on using futures contracts to hedge crop production and directly placing trades in clients' accounts.

The order states that Hendershott developed a client base by contacting prospective farmers and charged a flat fee for his services. He assisted clients in opening trading accounts and managed various aspects of those accounts, including fund transfers and margin issues.

The CFTC found that Hendershott met the criteria requiring CTA registration, as he held himself out as a CTA and provided commodity trading advice to more than 15 persons in a 12-month period while using interstate commerce to conduct his business.

Topics
Bny Mellon
CFTC
About the Author: Damian Chmiel
Damian Chmiel
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Damian's adventure with financial markets began at the Cracow University of Economics, where he obtained his MA in finance and accounting. Starting from the retail trader perspective, he collaborated with brokerage houses and financial portals in Poland as an independent editor and content manager. His adventure with Finance Magnates began in 2016, where he is working as a business intelligence analyst.

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