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EU and U.S. release statement on Joint Financial Regulatory Forum
On September 29 and 30, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S. – EU Joint Financial Regulatory Forum to continue their ongoing financial regulatory dialogue. Matters discussed focused on six different themes: “(1) market developments and current assessment of financial stability risks, (2) sustainable finance, (3) multilateral and bilateral engagement in banking and insurance, (4) regulatory and supervisory cooperation in capital markets, (5) financial innovation, and (6) anti-money laundering and countering the financing of terrorism (AML/CFT).”
While acknowledging that both the EU and U.S. are experiencing “robust economic recoveries,” participants cautioned that the uncertainty around the Covid-19 pandemic and the economic outlook has not dissipated. “[C]ooperative international engagement to mitigate financial stability risks remains essential,” participants warned. Participants also explored issues concerning climate-related challenges for the financial sector and mandates for addressing climate-related financial risks, and touched upon the EU’s strategy for financing its transition to a sustainable economy. Regarding financial innovation, participants discussed potential central bank digital currencies and exchanged views on topics such as new types of digital payments, crypto-assets, and stablecoins, with all participants recognizing the “benefits of greater international supervisory cooperation” and “promot[ing] responsible innovation globally.” In addition, participants discussed progress made in strengthening their respective AML/CFT frameworks, “exchanged views on the opportunities and challenges arising from financial innovation in the AML/CFT area and explored potential areas for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].”
CFTC announces more than $2.5 million in fines for swap data reporting violations
On September 29, the CFTC announced a $1.5 million settlement with a non-U.S. provisionally registered swap dealer headquartered in France to resolve claims that it failed to comply with certain swap dealer reporting requirements. Among other things, the swap dealer allegedly failed to meet mid-market mark disclosure requirements for numerous swaps, failed to accurately report certain swap valuation data to a swaps data repository, and did not diligently perform its supervisory obligations related to these disclosures. In addition to the civil monetary penalty, the swap dealer must cease and desist from further violations of the Commodity Exchange Act and CFTC regulations and must continue its remediation efforts.
Earlier, on September 27, the CFTC announced a $1 million civil monetary penalty to resolve allegations that a global financial institution violated swap data legal entity identifier (LEI) reporting requirements as well as related supervision responsibilities. According to the CFTC, the alleged failures violated the cease and desist provision of a 2017 CFTC order, in which the CFTC found that the financial institution, among other things, failed to report LEI swap transaction data or establish systems and procedures to do so, did not correct errors in previously reported LEI data, and failed to diligently perform its supervisory duties when reporting LEI swap data. The 2017 order imposed a $550,000 civil monetary penalty and required the financial institution to cease and desist violating CFTC regulations. The CFTC’s September 27 order further found that the financial institution’s alleged continued reporting failures occurred, in part, from a failure to diligently supervise its swap dealer activities with respect to LEI swap data reporting.
Biden announces key FTC, CFTC nominations
On September 13, President Biden nominated Alvaro Bedoya for Commissioner of the FTC. Bedoya would replace FTC Commissioner Rohit Chopra, who was nominated as the permanent director of the CFPB (covered by InfoBytes here). Chopra currently awaits a Senate confirmation vote on his nomination to serve as the Bureau’s director.
Bedoya, a Georgetown University visiting professor of law, also founded the law school’s Center on Privacy & Technology. According to the administration’s announcement, Bedoya previously “co-led a coalition that successfully pressed an Internet giant to drop ads for online payday loans” and served as the first chief counsel to the Senate Judiciary Subcommittee on Privacy, Technology and the Law. FTC Chair Lina M. Khan issued a statement following Bedoya’s nomination praising his “expertise on surveillance and data security.”
Additionally, Biden announced several CFTC Commissioner nominees: Kristin Johnson, Christy Goldsmith Romero, and Rostin Behnam, who currently serves as the agency’s acting chairman and has been nominated to be the permanent CFTC Chair. Behnam’s priorities include safeguarding customer protections, climate-related financial market risk, and diversity, equity, and inclusion in the financial markets.
Agencies address nonfinancial corporations’ LIBOR transition concerns
On August 23, the U.S. Treasury Department, Federal Reserve Board, SEC, Federal Reserve Bank of New York, and CFTC released a letter responding to nonfinancial corporate stakeholders’ concerns as they prepare to transition from LIBOR to another reference rate. The agencies acknowledged that LIBOR’s cessation “presents considerable operational, technological, accounting, tax, and legal challenges for Main Street companies,” and recognized that “a smooth transition will be best supported if financial institutions offer alternatives to USD LIBOR that meet borrower needs and if this is done in a timely fashion.” The agencies further acknowledged challenges some stakeholders have faced when obtaining loan agreements based on the Secured Overnight Financing Rate (SOFR)—“even after they indicated that loan agreements based on SOFR would be their preferred choice”—and expressed concerns that nonfinancial corporations are not being offered such alternatives despite the short period of time before LIBOR’s cessation. Stressing the importance of using “reference rates built on deep, liquid markets that are not susceptible to manipulation” while also reiterating that “the official sector is not positioned to adjudicate the selection of reference rates between banks and their commercial customers,” the agencies stressed that “borrower preferences and needs clearly have a significant role to play in the selection of such rates.”
Find continuing InfoBytes coverage on LIBOR here.
CFTC settles AML violations with cryptocurrency derivatives platform
On August 10, the CFTC announced that the U.S. District Court for the Southern District of New York entered a consent order against several companies (defendants) charged with operating an unregistered cryptocurrency derivatives trading platform. As previously covered by InfoBytes, in October 2020, the CFTC announced that it filed a complaint against five entities and three individuals for allegedly owning and operating an unregistered cryptocurrency derivatives platform and failing to implement required anti-money laundering procedures. The complaint alleged that the platform “illegally offer[ed] leveraged retail commodity transactions, futures, options, and swaps” on cryptocurrencies without implementing key safeguards required by the Commodity Exchange Act and several CFTC regulation compliance measures, such as know-your-customer procedures or actions designed to detect and prevent illicit activities. The CFTC also claimed that the exchange operated as an unregistered futures commission merchant and did not have CFTC approval to operate as a designated contract market or swap execution facility. In addition, the defendants are permanently “restrained, enjoined, and prohibited from directly or indirectly offering to enter into retail commodity transactions,” among other things. The order notes that the defendants engaged in remedial measures, such as developing an AML and user verification program. The companies were ordered to pay a $100 million civil monetary penalty, but up to $50 million of the penalty may be offset by payments made by, or amounts credited to, the defendants pursuant to the Assessment of Civil Money Penalty entered by the Financial Crimes Enforcement Network.
FinCEN issues first government-wide AML/CFT priorities
On June 30, the Financial Crimes Enforcement Network (FinCEN) issued the first government-wide priorities for anti-money laundering and countering the financing of terrorism (AML/CFT) policy (AML/CFT Priorities) pursuant to the Anti-Money Laundering Act of 2020 (AML Act). The AML/CFT Priorities were established in consultation with the Treasury Department’s Office of Foreign Assets Control, SEC, CFTC, IRS, state financial regulators, law enforcement, and national security agencies, and highlight key threat trends as well as informational resources to assist covered institutions manage their risks and meet their obligations under laws and regulations designed to combat money laundering and counter terrorist financing. According to the AML/CFT Priorities, the most significant AML/CFT threats currently facing the U.S. (in no particular order) are corruption, cybercrime, domestic and international terrorist financing, fraud, transnational criminal organization activity, drug trafficking organization activity, human trafficking and human smuggling, and proliferation financing. FinCEN further noted it will update the AML/CFT Priorities to highlight new or evolving threats at least once every four years as required under the AML Act, and issued a separate statement providing additional clarification for covered institutions.
Separately, the Federal Reserve Board, FDIC, NCUA, OCC, state bank and credit union regulators, and FinCEN also issued a joint statement providing clarity for banks on the AML/CFT Priorities. The statement emphasized that the publication of the AML/CFT Priorities “does not create an immediate change to Bank Secrecy Act (BSA) requirements or supervisory expectations for banks.” Rather, within 180 days of the establishment of the AML/CFT Priorities, FinCEN will promulgate regulations, as appropriate, in consultation with the federal functional regulators and relevant state financial regulators. The federal banking agencies noted that they intend to revise their BSA regulations as needed to address how the AML/CFT priorities will be incorporated into BSA requirements for banks, adding that banks will not be required to incorporate the AML/CFT Priorities into their risk-based BSA compliance programs until the effective date of the final revised regulations. However, banks may choose to begin considering how they intend to incorporate the AML/CFT Priorities, “such as by assessing the potential related risks associated with the products and services they offer, the customers they serve, and the geographic areas in which they operate.” Moreover, the statement confirmed that federal and state examiners will not examine banks for the incorporation of the AML/CFT Priorities into their risk-based BSA programs until the final revised regulations take effect.
U.S.-UK financial regulators discuss bilateral issues
On May 24, the U.S. Treasury Department issued a joint statement covering the recently held fourth meeting of the U.S.-UK Financial Regulatory Working Group (Working Group). Participants included officials and senior staff from both countries’ treasury departments, as well as regulatory agencies including the Federal Reserve Board, CFTC, FDIC, OCC, SEC, the Bank of England, and the Financial Conduct Authority. The Working Group discussed, among other things, (i) financial sector implications of the UK’s withdrawal from the EU; (ii) “cooperative efforts to promote the free flow of cross-border financial services data crucial for effective financial sector regulation and supervision”; (iii) regulatory fragmentation and data localization risks; (iv) the Financial Stability Board’s work on non-bank financial intermediation, which involves active engagement from both U.S. and UK authorities; and (v) the management of climate-related financial risks and other sustainable finance issues. Working Group participants will continue to engage bilaterally on these issues and others ahead of the next meeting planned for this fall.
U.S.-EU release statement on Joint Financial Regulatory Forum
On March 24 and 25, EU and U.S. participants, including officials from the Treasury Department, Federal Reserve Board, CFTC, FDIC, SEC, and OCC, participated in the U.S.-EU Joint Financial Regulatory Forum to discuss topics of mutual interest, including those related to (i) “next steps” for Covid-19 recovery and for mitigating financial stability risks; (ii) “sustainable finance”; (iii) banking and insurance multilateral and bilateral engagement; (iv) capital market regulatory and supervisory cooperation; (v) regulatory and supervisory developments pertaining to financial innovation, including the importance of promoting ongoing “responsible innovation and international supervisory cooperation”; and (vi) anti-money laundering and countering the financing of terrorism (AML/CFT) issues, including “the potential for enhanced cooperation to combat money laundering and terrorist financing bilaterally and in the framework of [the Financial Action Task Force].” Participants also discussed possible responses to climate-related financial risks, as well as “the progress in their respective legislative and supervisory efforts to ensure a smooth transition away from LIBOR.”
Digital asset company to pay $6.5 million to settle CFTC allegations
On March 19, the CFTC announced a $6.5 million settlement with a California-based digital asset company to resolve allegations of false, misleading, or inaccurate reporting concerning its digital asset transactions that violated the Commodity Exchange Act or CFTC regulations. According to the CFTC, from January 2015 to September 2018, the company allegedly operated at least two trading programs that generated orders that, at times, matched each other. The CFTC claimed, among other things, that the transactional information provided on the company’s website and given to reporting services resulted “in a perceived volume and level of liquidity of digital assets. . .that was false, misleading or inaccurate.” Additionally, the CFTC alleged that the company was vicariously liable for a former employee’s use of “a manipulative or deceptive device” to intentionally place buy and sell orders that matched each other, creating a misleading appearance of interest in certain cryptocurrencies. The company did not admit or deny the CFTC’s findings and agreed to pay a $6.5 million civil penalty.
Multi-national bank settles FCPA and commodities fraud charges for $130 million
On January 8, the DOJ announced it had entered into a deferred prosecution agreement with a German-based multi-national financial services company (company), in which the company agreed to pay more than $130 million to resolve an investigation into violations of the Foreign Corrupt Practices Act (FCPA) and a separate investigation into a commodities fraud scheme.
According to the DOJ, between 2009 and 2016, the company admitted to knowingly and willfully conspiring to conceal payments to business development consultants (BDC) which were actually bribes to foreign officials in order to obtain business. The company admitted that employees agreed to “misrepresent the purpose of payments to BDCs and falsely characterize[d] payments to others as payments to BDCs” in violation of the FCPA’s books, records, and accounts provisions. Additionally, company employees failed to implement adequate internal accounting controls in violation of the FCPA by, among other things, (i) failing to conduct meaningful due diligence regarding the BDCs; (ii) paying BDCs who were not under contract with the company at the time; and (iii) paying BDCs without adequate documentation of the services purportedly performed.
Additionally, the DOJ stated that between 2008 and 2013, the company’s precious metal traders engaged in a scheme to defraud other traders on the New York Mercantile Exchange Inc. and Commodity Exchange Inc. by placing orders to buy and sell precious metals futures contracts with the intent to cancel those orders before execution. The company previously settled with the CFTC in January 2018 for substantially the same conduct (covered by InfoBytes here).
Of the total $130 million penalty, the company will pay a criminal penalty of nearly $80 million to the DOJ in relation to the FCPA violations, and will pay $43 million in disgorgement and prejudgment interest to the SEC to settle allegations that the company violated the FCPA’s books and records and internal accounting controls provisions. The company will pay over $7.5 million in relation to the commodities scheme, for criminal disgorgement, victim compensation, and a criminal penalty. The DOJ noted that the company received full credit for cooperation with the investigations and for significant remediation.