Regulators Intensify Crackdown on Record-Keeping Violations: CHS Hedging Fined $650,000 Amid Broader Enforcement Surge

In the latest move by regulators to clamp down on record-keeping violations, the Commodity Futures Trading Commission (CFTC) has fined CHS Hedging, LLC $650,000 for failing to properly maintain required records and executing unauthorized trades. This penalty follows a growing trend of financial regulators taking swift and severe action against firms for failing to meet compliance obligations in the digital age.

CHS Hedging’s violations, which occurred over a four-year period, involved the failure to keep approximately 3,000 audio recordings of critical customer communications. The firm also placed unauthorized trades on behalf of seven clients, further exacerbating its regulatory woes. Despite the penalty, the firm avoided more severe consequences by cooperating with the CFTC and self-reporting its compliance failures.

However, this is just one piece in a larger regulatory puzzle, as both the CFTC and Securities and Exchange Commission (SEC) have been aggressively pursuing enforcement actions related to record-keeping lapses across the financial sector.

A Nationwide Crackdown on Record-Keeping

CHS Hedging is far from alone in facing the ire of regulators over record-keeping failures. Last month, the SEC and CFTC imposed penalties exceeding $118 million on 12 financial institutions, including broker-dealers and investment advisers, for their widespread use of unapproved communication methods. Personal text messages and other "off-channel" communications deprived regulators of key records during investigations, prompting swift penalties.

Among the firms charged, Canadian Imperial Bank of Commerce (CIBC) was slapped with a $30 million fine by the CFTC for failing to preserve required records and for supervisory failures. Other firms received reduced penalties or had penalties waived entirely due to cooperation and proactive compliance measures, illustrating the importance of firms taking responsibility for their own record-keeping infractions.

Piper Sandler: A Divisive Case

The record-keeping enforcement trend has even ignited controversy within regulatory bodies. Piper Sandler Hedging Services LLC was fined $2 million by the CFTC for failing to preserve records of business-related communications conducted through unapproved channels, but the penalty sparked dissent within the commission itself.

Two CFTC commissioners, Summer K. Mersinger and Caroline D. Pham, issued dissenting opinions, questioning both the evidence supporting the charges and the CFTC's jurisdiction. Pham argued that the case overstepped the CFTC’s bounds and accused the agency of piggybacking off the SEC’s investigations into Piper Sandler’s parent company. Mersinger, meanwhile, criticized the broad interpretation of record-keeping requirements, warning that labeling all business communications as "records" creates unnecessary compliance burdens for firms.

Despite the dissent, the majority of the CFTC supported the fine, underscoring the agency's determination to enforce record-keeping rules. The case also highlights an ongoing regulatory debate about how to apply record-keeping laws in an era where communication is increasingly conducted via personal devices and digital channels.

Credit Rating Agencies Hit with $49 Million in Penalties

Adding to the growing list of record-keeping violators, the SEC recently imposed $49 million in penalties on six major credit rating agencies, including industry giants Moody’s and S&P Global Ratings. These agencies were found to have violated federal securities laws by failing to properly maintain and preserve electronic communications, a critical aspect of compliance in the highly regulated credit rating sector.

Moody’s and S&P Global were each fined $20 million, while Fitch Ratings received an $8 million penalty. Other agencies, including HR Ratings de México, A.M. Best, and Demotech, were penalized for smaller violations but still faced hefty fines for their record-keeping failures. Four of the six firms are now required to retain compliance consultants to overhaul their policies and procedures, further signaling regulators' no-tolerance approach to these kinds of infractions.

Implications for Financial Firms

The increasing number of enforcement actions signals a broader regulatory shift. Financial firms are facing higher compliance expectations as regulators emphasize the importance of maintaining accurate and complete records, particularly in an era of rapid technological change. Personal devices, encrypted apps, and informal communication channels have created new risks, and firms that fail to adapt face steep penalties.

For compliance officers and GRC professionals, the message is clear: record-keeping cannot be an afterthought. Firms must implement robust internal controls, conduct regular audits, and ensure that all business-related communications are captured and preserved in compliance with federal law. The regulatory environment is unforgiving, and self-reporting and cooperation with investigations are often the only ways to mitigate penalties.

The cases of CHS Hedging, Piper Sandler, and the credit rating agencies highlight both the complexity of record-keeping compliance and the high stakes involved. As regulators continue to scrutinize the practices of financial institutions, firms must be proactive in addressing the risks tied to electronic communications and evolving business practices.

With penalties now reaching into the tens and hundreds of millions, financial institutions are on notice. Compliance is no longer just about avoiding fines—it's about maintaining the integrity of financial markets and ensuring investor protection in an increasingly digital world.

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