CFTC Says Enforcing Risk-Management Rules Is a Priority
03 October 2019 - 10:23AM
Dow Jones News
By Kristin Broughton
The Commodity Futures Trading Commission for the first time
charged a bank with violating risk-management rules adopted after
the financial crisis, a signal to the industry to bolster internal
controls in their swaps businesses.
The CFTC late Tuesday said it charged a U.S. subsidiary of
London-based HSBC Holdings PLC with violating rules that require
financial institutions to establish a governing body and internal
policies to oversee data reporting for swaps dealers. HSBC agreed
to pay $650,000 to settle the case, which also included allegations
of reporting failures.
The CFTC adopted its risk-management rules in the wake of the
financial crisis, alongside a host of other requirements for swaps
dealers. Swaps are bets on the direction of interest rates,
commodities and other assets.
The enforcement action shows the regulator underscoring the
importance of postcrisis rules that otherwise haven't received much
attention among the wave of changes adopted under the 2010
Dodd-Frank financial-regulatory overhaul, according to Aitan
Goelman, a former enforcement director at the CFTC.
"There is a concern that they become [viewed as] mere
suggestions," said Mr. Goelman, who left the CFTC in 2017 and is
now a partner in the white-collar-defense practice at Zuckerman
Spaeder LLP. "I think this is an illustration of the CFTC saying,
'No, guys. You really have to follow this.'"
The CFTC described its settlement with HSBC as part of a
continuing effort to ensure swaps dealers have strong internal
controls in place.
"The commission's swap-dealer risk management rules are designed
to monitor and regulate systemic risk endemic to the swaps market,"
said James McDonald, director of the CFTC's enforcement division,
in a press release announcing the case.
At issue in the HSBC case -- and other enforcement actions
involving swaps reporting -- is the CFTC's ability to collect
accurate data about a large financial market that was largely
opaque before Dodd-Frank, attorneys said.
According to the settlement, HSBC's U.S. division from January
2013 until November 2015 had no governing body in place to identify
and manage swaps-related risks. Additionally, the bank approved
risk-tolerance limits and policies for its swaps business as part
of broader reviews across its business lines, rather than
separately as a stand-alone unit, the agency said.
"We have since improved all relevant systems and processes,"
HSBC spokesman Rob Sherman said in an email.
The bank didn't admit or deny the regulator's findings,
according to the settlement.
The case sends a message to swaps dealers, several of which have
been fined by the CFTC in recent years for faulty data reporting,
said Michael Spafford, a partner in the investigations and
white-collar-defense practice at Paul Hastings LLP.
"It's not just a question of having the systems in place," Mr.
Spafford said. "They have to be supervised."
Write to Kristin Broughton at Kristin.Broughton@wsj.com
(END) Dow Jones Newswires
October 02, 2019 20:08 ET (00:08 GMT)
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