CFTC fines BNP Paribas, JPMorgan for swap reporting violations

BNP Paribas agreed to pay $6 million, while JPMorgan was fined $850,000.

Neither firm admitted nor denied the CFTC’s findings.

BNP Paribas details: From at least 2016 through 2021, BNP Paribas “failed to correctly report numerous swap transactions consistent” with required regulations, according to the CFTC’s order. The agency said more than three million swap transactions during the period were incorrectly reported, including hundreds of thousands each underreported and overreported.

Among the alleged failures was more than 6,000 swap transactions with U.S. persons going unreported because the counterparties had been incorrectly classified as non-U.S. persons, according to the CFTC.

The agency also found from 2016-17 BNP Paribas adjusted daily mark disclosures to swap counterparties on certain swap transactions in a manner that led to inconsistencies. BNP Paribas personnel referred to these adjustments as “smoothing,” per the order. The practice was halted after firm compliance personnel determined it wasn’t in line with CFTC rules.

BNP Paribas agreed to pay the penalty, cease and desist from further violations, and file a written report within one year to the CFTC’s Division of Enforcement regarding its compliance with the Commodity Exchange Act and other relevant regulations. The report must be signed by BNP Paribas’s chief compliance officer, according to the order.

The CFTC recognized BNP Paribas’s cooperation during the investigation in the form of a “substantially reduced” penalty.

BNP Paribas did not respond to a request for comment.

JPMorgan details: The CFTC fined JPMorgan for similar swap reporting violations, including failing to “report approximately 2.1 million short-dated foreign exchange (FX) swap transactions,” the agency stated in a press release.

From September 2015 to February 2020, JPMorgan “erroneously believed that short-dated FX swap transactions did not meet the definition of a ‘foreign exchange swap’ under the [Commodity Exchange Act] as interpreted in the CFTC’s 2012 guidance regarding the definition of a swap and therefore were not required to be reported,” according to the CFTC’s order.

These unreported transactions represented approximately 51 percent of the total number of FX swaps JPMorgan executed during the relevant period, the CFTC said.

JPMorgan agreed to a pay the penalty and cease and desist from any further violations.

JPMorgan declined to comment.

Noteworthy quote: Regarding the BNP Paribas case, CFTC Commissioner Caroline Pham was critical of the agency’s decision not to have a senior officer sign the written consent order along with the chief compliance officer.

“Management accountability is essential to ensuring that compliance with CFTC regulations is a priority and that there are sufficient resources dedicated to the swap dealer compliance program,” she wrote in a statement. “It is the business and management, not the compliance department, who are the first line of defense. I am disappointed that the commission failed to send this strong message today, and my expectation is that we will not fail to do so again.”