BGC Financial has agreed to pay a $3 million civil penalty to settle charges pursued by the U.S. Commodity Futures Trading Commission (CFTC) regarding various supervision, reporting, and recordkeeping violations that went on for more than five years.
BGC will continue to retain an outside consultant to make recommendations for improvements for more than a year in accordance with the enforcement. The consultant also must prepare reports assessing the futures industry broker’s compliance with the Commodity Exchange Act and CFTC regulations.
The CFTC maintained BGC did not establish an adequate supervisory system for its futures brokerage business from at least 2014 through 2019. This failure, in turn, led to other violations. The CFTC asserted BGC did not create audit trail and other documents and also alleged BGC did not notify it about a change in senior management as it was required to do. Other alleged violations include not alerting the CFTC to a formal investigation by the Securities and Exchange Commission and not complying with chief compliance officer obligations and reporting, according to the CFTC.
BGC neither admitted nor denied guilt in settling the charges.
The CFTC’s enforcement action “highlights the importance of recordkeeping, supervision, and transparency in reporting to the Commission,” said James McDonald, director of enforcement at the CFTC, in a news release. These “fundamental requirements” are necessary for the CFTC “to accomplish its mission to safeguard the integrity of our markets,” he continued.
More than one recordkeeping fail
As a futures brokerage business, BGC is supposed to record and retain voice recordings, but it experienced “several” recording and retention failures between 2014 and 2019, the CFTC wrote in its order. Not only did BGC fail “to capture verbal bids, offers, orders, and other important trade communications for periods of up to four months,” it also “lost all voice recordings” between February and May 2016 “for thousands” of brokered trades, according to the CFTC.
When the CFTC’s Division of Enforcement asked BGC to produce audit trail for 100 random trades, BGC could only produce complete audit trail for less than half of the trades “due to missing voice recordings and its inability to locate trade related documentation,” the CFTC wrote. An audit trail shows the history of a transaction within an organization.
‘Numerous formal investigations’
BGC also did not let the CFTC know about “numerous formal investigations by regulatory entities,” even though it was required to do so, the CFTC wrote. BGC did not mention “at least eight settlements with the Financial Industry Regulatory Authority” and did not alert the CFTC in a timely manner about an SEC investigation that resulted in a $1.25 million settlement for “willful” books and records violations.
Failure to take reasonable steps
The CFTC found fault with BGC’s failure to take “reasonable steps” to ensure compliance with CFTC requirements. BGC’s written policies “were insufficient,” and the organization also did not have sufficient written procedures implementing those policies, the CFTC maintained.
Moreover, some BGC branch managers were not provided with adequate instruction or training about how they were to monitor against inadequate trade practices, the CFTC alleged. Brokers apparently were using their personal cell phones to broker some trades even though BGC’s policy had “expressly precluded its brokers from using personal cell phones to conduct firm business.” Some branch managers were not even aware they were responsible for supervising their branches.
In addition to paying a $3 million civil penalty to the CFTC, BGC agreed to continue to retain an outside consultant that it had turned to for help during the CFTC’s investigation. The consultant is to assess BGC’s compliance and make recommendations for improvements in its practices, policies, and procedures. The consultant’s first report must be generated and provided to the CFTC within one year, and a second report must be provided a year later. If the CFTC finds any deficiencies, it can require that BGC keep the outside consultant on for a third year.
Lori Tripoli is a writer based in the greater New York City area who focuses on legal and regulatory issues.
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