The Commodities Futures Trading Commission (CFTC) issued charges against a global investment bank for failing to properly retain audio files recorded from mobile devices related to their swaps business. Previous attempts to address the issue via a variety of third-party and home-grown technologies failed, resulting in the loss of thousands of calls. The relatively small $5.5 million fine reflects the bank’s cooperation with the CFTC and actions to remediate the issue. It follows a previous fine of $75 million.
How is this different than previous enforcement actions?
Unlike previous enforcement actions issued by the CFTC that focused on the use of prohibited tools and devices, this action resulted from the failure of the bank to follow a cease-and-desist order in 2019. The bank had permitted traders to conduct swap-related business on mobile devices through a variety of third-party and in-house technologies, but the call volume caused failure in their vendor’s hardware. This resulted in a failure to record and retain thousands of mobile device calls.
This CFTC rule is slightly different than FINRA’s (Financial Industry Regulatory Authority) recordkeeping requirements. Where the CFTC calls out oral communications specifically, FINRA only broadly addresses public and one-to-one communications.
- Regulators care about mobile communications
This charge provides further evidence that the CFTC continues to be hyper-focused on enforcement of mobile usage, continuing from their $250 million in off-channel regulatory enforcement actions earlier in August.
- New precedent set on retaining call recordings
This is one of the first enforcement actions focused on recordkeeping of call recordings, which must be captured and retained under CFTC recordkeeping rule 23.202. This rule states, “records of all oral and written communications … that lead to execution of a swap,” must be retained. Traditionally, this is accomplished with dedicated fixed-line trading turret.
- Plan for solution scalability
A solution to address the immediate issue was implemented in June 2022, which satisfied the CFTC at the time. However, the ability to support call volumes on mobile devices and scalability of capture solutions will likely remain a topic for future CFTC scrutiny.
What can banks do now?
This action, combined with recent off-channel fines, should have all major swaps participants examining mobile device policies and capture solution capabilities. This includes other CFTC and National Futures Association (NFA) registrants required to retain all oral and written communications under Rules 1.31 and 23.202.
Swaps participants and investment banks of all sizes must come to terms with increasing regulatory pressures. Fortunately, this challenge can be addressed with scalable, end-to-end archiving solutions. Banks can ensure recordkeeping compliance and reduce their compliance risks — and the risk of making the next headline.
Source: Smarsh. Author: Robert Cruz. Vice President, Information Governance.
Smarsh® is the recognized global leader in electronic communications archiving solutions for regulated organizations. Smarsh provides innovative capture, archiving, e-discovery, and supervision solutions across the industry’s widest breadth of communication channels.
Scalable for organizations of all sizes, the Smarsh platform provides customers with compliance built on confidence. It enables them to strategically future-proof as new communication channels are adopted, and to realize more insight and value from the data in their archive. Customers strengthen their compliance and e-discovery initiatives and benefit from the productive use of email, social media, mobile/text messaging, instant messaging and collaboration, web, and voice channels.
Smarsh serves a global client base that spans the top banks in North America and Europe, along with leading brokerage firms, insurers, and registered investment advisors. Smarsh also enables state and local government agencies to meet their public records and e-discovery requirements. For more information, visit www.smarsh.com.
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