CFTC Fines Piper Sandler $2M Amid Strong Internal Dissent

The Commodity Futures Trading Commission (CFTC) has imposed a $2 million civil monetary penalty on Piper Sandler Hedging Services LLC for alleged record-keeping violations, but the decision has ignited a fierce debate within the commission itself. Two commissioners have issued dissenting statements, questioning both the evidence supporting the charges and the CFTC's jurisdiction in the matter.

The enforcement action, announced today, alleges that Piper Sandler, an introducing broker, failed to maintain and preserve required records of business-related communications conducted through unapproved channels, primarily personal text messages. The firm has agreed to pay the fine and undertake remedial actions without admitting or denying the findings.

However, the settlement has drawn sharp criticism from within the CFTC. Commissioners Summer K. Mersinger and Caroline D. Pham have both issued dissenting statements, raising significant concerns about the basis and implications of the enforcement action.

Commissioner Pham directly challenged the evidence supporting the charges, stating, "Once again, the CFTC has no evidence that a violation of CFTC record-keeping rules for introducing brokers (IBs) actually occurred." She further questioned the CFTC's jurisdiction in the case, arguing that the action "piggybacks off the SEC's investigation and swerves out of the CFTC's lane into the securities markets."

Pham emphasized that records relating to securities or other business activities of a parent company or affiliate under other agencies' rules fall outside the CFTC's jurisdiction for introducing brokers. "That is why other agencies have their own enforcement authority over their own statutes and their own registrants," she noted.

Commissioner Mersinger, in a separate dissenting statement, raised broader concerns about the implications of the enforcement action on regulatory clarity and the interpretation of record-keeping requirements. She argued that the case sends a problematic message that "everything is a business record," even if such a conclusion lacks foundation in the Commodity Exchange Act (CEA) or CFTC regulations.

Mersinger highlighted the nuanced nature of record-keeping requirements, pointing out that they vary based on the category of the entity and that Regulation 1.35, the principal record-keeping rule for intermediaries, has historically focused on transaction-related records rather than all business communications.

"The mere existence of business-related communications occurring through unofficial channels is not necessarily a violation," Mersinger stated. She called for greater clarity in how the CFTC's Division of Enforcement construes violations when settling these matters.

The dissenting opinions underscore a growing debate within the financial regulatory community about the scope and application of record-keeping requirements in the digital age. They also raise questions about potential regulatory overreach and the need for clearer guidelines for firms navigating the complex landscape of digital communications and compliance.

Industry experts suggest that this case could have far-reaching implications for financial firms, particularly introducing brokers. The lack of consensus within the CFTC itself may create uncertainty about compliance expectations and could potentially lead to calls for more specific guidance or even rule changes in the future.

Despite the internal disagreement, the majority of the commission voted to approve the settlement. The CFTC's enforcement director, in a statement accompanying the order, emphasized the importance of maintaining proper records to ensure market integrity and protect investors.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.