CFTC Fines Bank of New York Mellon $5 Million for Swap Reporting Violations

The Commodity Futures Trading Commission (CFTC) has taken action against The Bank of New York Mellon (BNYM), imposing a $5 million civil monetary penalty for repeated failures in swap transaction reporting and supervision of its swap dealer business. The order, issued on August 26, 2024, addresses violations of a prior CFTC order and failures to comply with the Commodity Exchange Act (CEA) and CFTC regulations.

According to the CFTC, from 2018 through 2023, BNYM incorrectly reported at least five million swap transactions to a registered swap data repository. This misreporting not only violated CFTC regulations but also breached a previous order issued against BNYM in September 2019, which had required the bank to cease and desist from similar violations.

Ian McGinley, Director of the CFTC's Division of Enforcement, emphasized the critical nature of accurate reporting in the regulatory framework for swaps, stating, "Accurate reporting is a core pillar of the regulatory regime for swaps, and every individual data field matters."

The CFTC's order also highlighted BNYM's failure to properly supervise its swap dealer business. Specifically, 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 the CEA and CFTC regulations.

Despite these serious violations, the CFTC acknowledged BNYM's cooperation and remediation efforts. The bank has agreed to retain an independent compliance consultant to review and advise on its compliance program, a decision that factored into the reduced civil monetary penalty.

Adding context to the settlement, CFTC Commissioner Caroline D. Pham released a statement praising the recognition of self-reporting and cooperation credit in this case. Commissioner Pham stated, "I hope the CFTC will adopt a clear standard that is applied consistently as I have previously recommended." She further emphasized the need for improved internal governance and procedures at the CFTC to promote accountability and provide regulatory clarity.

This case underscores the CFTC's ongoing focus on ensuring accurate swap data reporting and proper supervision in the financial industry. It serves as a reminder to all swap dealers of the importance of robust compliance programs and the potential consequences of repeated regulatory violations.

The action against BNYM also highlights the CFTC's approach to enforcement, which considers factors such as self-reporting, remediation efforts, and cooperation when determining penalties. This balanced approach aims to encourage financial institutions to proactively address compliance issues and cooperate with regulatory investigations.

As the derivatives market continues to evolve, this case serves as a clear signal that the CFTC remains vigilant in its oversight of swap dealers and is committed to maintaining the integrity of swap data reporting systems. At the same time, Commissioner Pham's statement indicates an ongoing discussion within the CFTC about how to improve its enforcement processes and provide greater clarity to market participants.

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