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CFTC Orders Six Financial Institutions to Pay Total of More Than $6 Million for Reporting Failures

(HedgeCo.Net) The U.S. Commodity Futures Trading Commission today announced that it issued orders yesterday against HSBC Bank USA, N.A., Société Générale International Limited, The Northern Trust Company, NatWest Markets Plc, The Bank of New York Mellon, and PNC Bank, National Association for reporting failures. Société Générale International Limited and The Northern Trust Company were also charged with failing to supervise in connection with the reporting failures. HSBC was also charged with violating swap-dealer risk management regulations, the first time the Commission has brought such an action.

“Accurate reporting is essential to effective fulfillment of the regulatory functions of the CFTC, including meaningful surveillance and enforcement programs,” said CFTC Director of Enforcement James McDonald. “As these actions show, the CFTC will continue to vigorously enforce reporting requirements. The CFTC will also take appropriate action where reporting failures are occurring as a result of serious supervisory failures.”

McDonald further commented on the HSBC matter, “The Commission’s swap-dealer risk management rules are designed to monitor and regulate the systemic risk endemic to the swaps market. At the heart of these regulations is the requirement that swap dealers separately consider the risks unique to swaps as an asset class, separate from their other businesses. This is the first action the CFTC has brought regarding violations of these particular swap-dealer risk management regulations, and the Commission will continue to focus on enforcing these critical requirements.”

Enforcement Action Against HSBC Bank USA, N.A.

On Monday, September 30, 2019, the CFTC filed and settled charges against HSBC Bank USA, N.A., a provisionally registered swap dealer, for failing to establish appropriate risk management systems for its swap activities or to properly report swap data in certain categories, for certain swap transactions, to a swap data repository. The CFTC order imposes a $650,000 civil monetary penalty on HSBC, among other sanctions. The order recognizes that the civil monetary penalty in this matter was reduced in light of HSBC’s cooperation and remediation.

With respect to risk management, the order specifically finds that from January 2013 until November 2015, HSBC did not designate a swap dealer governing body or senior management to fulfill the requisite oversight duties under CFTC regulations. Relatedly, with respect to its swap dealing activities, HSBC failed to:

Separately consider certain risks associated with its swap activities;
Properly approve its risk tolerance limits, risk management program and policies and procedures, and trading policies; and
Properly review its quarterly risk exposure reports, annual audits of its risk management program, and its business continuity and disaster recovery plan.

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