More than two dozen firms have been hit with fines by US regulators the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) over recordkeeping and communications violations.
Truist, TD Bank and Cowen received penalties from both regulators.
Twenty six broker-dealers, investment advisers, and dually-registered broker-dealers and investment advisers were fined a combined US$392.75 million by the SEC over widespread recordkeeping violations under the Securities Exchange Act, the Investment Advisers Act, or both.
The SEC uncovered “pervasive and longstanding” use of off-channel communications by the firms’ personnel which preclude their ability to preserve and maintain records of these communications.
A number self-reported their violations (Truist, Cetera Advisor Networks, Hilltop Securities) and therefore received a reduced penalty.
Among the 26 firms targeted by the SEC are RBC Capital Markets (US$45m), BNY Mellon Securities (US$40m), TD Securities (US$30m), and Cowen (US$16.5m).
Gurbir Grewal, director of the SEC’s division of enforcement, said, “As today’s enforcement actions reflect, we remain committed to ensuring compliance with the books and records requirements of the federal securities laws, which are essential to investor protection and well-functioning markets.”
The CFTC found that Truist Bank failed to maintain required records, as well as failing to adequately manage matters related to its business as a CFTC swap dealer.
The firm has been ordered to pay a reduced US$3 million penalty, after it self-reported its failings to the regulator following an internal review which revealed “widespread and long standing use” – 2019 to the present – of unapproved communication methods by swap dealer employees, including senior-level employees.
CFTC director of enforcement Ian McGinley said, “Truist’s decision to self-report, cooperate, remediate, and be held accountable allowed it to benefit in the form of a substantially reduced penalty. At the same time, the CFTC’s message remains clear—recordkeeping and supervision requirements are fundamental, and registrants that fail to comply with these core obligations do so at their own peril.”
On Truist’s fine, Matt Smith, CEO of SteelEye, said: “Truist’s penalty highlights the increasing need for effective communication oversight, particularly in the highly complex world of swaps trading. Swaps, especially those involving multiple counterparties or intricate hedging strategies, generate vast amounts of communication across different channels. All this data needs to be captured. Further, analysing it requires specialist technology capable of understanding the nuances of financial trading.
“As evident in this case, self-reporting is becoming increasingly important and can lessen the impact of a compliance failure. This is why supervision systems should be able to not only capture and monitor communications but also flag any intent by employees to use unauthorised channels.
“As regulatory scrutiny intensifies, the importance of self-reporting and proactive compliance grows, making it essential for firms to manage this complexity effectively.”
TD Bank has been hit with a US$4 million CFTC fine over failure to monitor certain communications for hundreds of its swap dealer personnel over a five-year period.
McGinley said, “Communications surveillance is a critical component of an effective system of supervision. This order and the significant monetary penalty reflect that swap dealers must not only have robust systems to detect and prevent market abuse and other misconduct, they must also vigilantly oversee and monitor those systems to ensure they are working.
The order finds TD Bank lacked effective oversight over its electronic communications surveillance system, that the monitoring used to identify gaps in its surveillance was insufficient and that it did not escalate any of its surveillance technology issues to a more senior oversight body until after it discovered its years-long failure in June 2023.
TD Bank and Cowen were also charged with failing to maintain and preserve records that were required to be kept under CFTC recordkeeping requirements.
TD Bank must pay a US$75 million penalty, and Cowen a US$3 million penalty.
The CFTC found that TD Bank, from at least 2015 to the present, and Cowen, from at least 2019 to February 2024, failed to prevent employees, including those at senior levels, from communicating using unapproved communication methods, including messages sent via personal text.
There was a 31% increase in the value of fines issued in H1 2024 compared to H1 2023, with the Asia-Pacific region (APAC) seeing the steepest rise in penalties, totalling more than US$46 million – a 266% increase compared to H1 2023.
The findings come from Fenergo, which said the rise in the value of fines reflects a global regulatory crackdown and technology advancements, which enhance the accuracy of detecting illicit activity.
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