In the first action, the CFTC ordered BNP Paribas, a global financial services firm and swap dealer, to pay a $6 million civil monetary penalty, and cease and desist from violating the applicable provisions of the CEA and CFTC regulations. BNPP must further produce, within one year, a written report to the CFTC Division of Enforcement regarding the swap dealer’s compliance with the CEA and CFTC regulations.
In a statement supporting the enforcement action, Commissioner Christy Goldsmith Romero highlighted how compliance was ignored in this situation. “Despite BNP compliance personnel flagging a swap reporting issue, BNP did not adequately and timely address the issue apparently due to concerns that a comprehensive fix would take significant time and resources,” she stated.
According to the CFTC order, from 2016 through at least 2021, BNPP “underreported at least 123,315 swaps and overreported at least 261,643 swaps,” the CFTC order stated. “Because swap transactions persist over time, and swap dealers normally make multiple reports regarding each reportable swap transaction, there were during this period more than 500,000 reports that should have been made, but were not made, in connection with the 123,315 underreported transactions.”
The specific causes of BNPP’s failure to report swap transactions that should have been reported included “failure to report more than 6,000 swap transactions with U.S. persons, because the counterparties had been incorrectly classified as non-U.S. persons,” the CFTC report stated. As a result, BNPP failed to make more than 300,000 reports relating to these transactions.
BNPP also violated the CEA and CFTC regulations by entering into more than three million swap transactions that were incorrectly reported “because BNPP failed to include in its reports for these transactions a required field indicating whether or not the transaction was with a non-swap dealer financial entity,” the CFTC order stated. “This data field is an important one for assessing swap dealers’ regulatory compliance.”
From 2016 to 2018, instead of correctly reporting bunched trades as allocations of trades, BNPP reported these transactions as new trades, according to the CFTC order. Additionally, from 2016 to 2020, BNPP incorrectly reported approximately 3,000 transactions as equity trades rather than commodity trades.
From 2016 to 2017, BNPP further violated CEA and CFTC regulations by adjusting daily mark disclosures for 82 swap transactions, “which resulted in approximately 19,000 adjusted daily mark disclosures being made to the relevant swap counterparties,” the CFTC stated.
‘Substantial Cooperation’
In reaching a settlement with BNPP, the CFTC recognized BNPP’s “substantial cooperation” during the Division of Enforcement’s investigation of this matter, which it said it recognized in the form of a “substantially reduced civil monetary penalty.”
In a statement, CFTC Commissioner Caroline Pham expressed concern that the settlement “ultimately is a missed opportunity for the Commission to fully enforce a culture of compliance and management accountability.”
“The Commission’s decision not to require a senior officer of the swap dealer, in addition to the chief compliance officer, to sign the written consent order report on remediation status and any ongoing material non-compliance issues suggests that the Commission does not take management accountability seriously,” Commissioner Pham stated.
“Management accountability is essential to ensuring that compliance with CFTC regulations is a priority and that there are sufficient resources dedicated to the swap dealer compliance program,” she said. “It is the business and management, not the compliance department, who are the first line of defense. I am disappointed that the Commission failed to send this strong message today, and my expectation is that we will not fail to do so again.”
J.P. Morgan Action
In the second action, the CFTC ordered J.P. Morgan to pay an $850,000 civil monetary penalty and to cease and desist from any further violations of the CEA or CFTC regulations, as charged.
In a statement expressing support for the enforcement action against JP Morgan, Commissioner Goldsmith Romero said she was “quite concerned by the duration and substantial nature of violations by JP Morgan. I also note that JP Morgan has been the subject of several CFTC enforcement actions over the years, and the subject of many other federal agency enforcement actions.”
According to the CFTC order, from September 2015 to February 2020, J.P. Morgan failed to report approximately 2.1 million short-dated foreign exchange (FX) swap transactions, which represented roughly 51 percent of the total number of FX swaps J.P. Morgan executed during that same period.
“Short-dated FX swaps are transactions in which the parties exchange two currencies the day after execution and then reverse that exchange at a predetermined rate on the following business day,” the CFTC stated.
“A short-dated FX swap is a reportable FX swap transaction because it involves an exchange of currencies and a reversal of that exchange on specific dates and at rates fixed at the inception of the contract. Consequently, J.P. Morgan was obligated to report its short-dated FX swaps under the relevant statutory and regulatory provisions, which it failed to do during the relevant period,” the CFTC stated.
J.P. Morgan represented to the CFTC it has reported all of the previously-unreported FX swaps transactions it was obligated to report.
“Timely and accurate reporting of swaps transactions by registered swaps dealers is critical to the CFTC’s mission to protect market participants and ensure market transparency and integrity,” said CFTC Acting Director of Enforcement Gretchen Lowe.
In both settlements, Commissioner Goldsmith Romero warned, “It has been more than 10 years since the Dodd-Frank Act swap data reporting rules have been in place. It is far past time for swap dealers to come into compliance with the law.” 
Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.