Quick Facts
Overview
The Commodity Futures Trading Commission (CFTC) fined SMBC Capital Markets, Inc., a registered swap dealer, $500,000 for violations related to recordkeeping and supervision. The firm failed to capture and preserve business-related communications sent via unapproved methods, such as personal text messages and WhatsApp, and did not diligently supervise employees to ensure compliance with internal policies and CFTC requirements.
Details of the Case
SMBC Capital Markets, Inc., headquartered in New York and registered as a swap dealer since December 31, 2012, violated CFTC rules by allowing employees to use unapproved communication channels for business matters during the period from May 2019 to August 2023. These channels included personal WhatsApp, email, and text messages, which were not monitored, reviewed, or archived as required.
The firm's internal policies prohibited such use, and it provided training and reminders to staff. However, a review conducted during the CFTC's investigation revealed widespread non-compliance.
No known harm to customers or markets resulted from these failures. The CFTC noted the firm's exemplary cooperation, including voluntary reviews of employee devices and presentations to staff, which led to a reduced penalty. As part of remediation, the firm enhanced policies, training, communication platforms, technology, and disciplinary measures.
WORKED EXAMPLES
Sampling Analysis of Employee Devices
A review of personal devices from approximately 10% of associated persons over at least one year showed that 70% violated policies by using unapproved methods for communications with brokers, coworkers, and market participants.
The results were deemed representative of broader issues within the firm, with unapproved methods including personal text messages, WhatsApp, and email.
Unapproved Communication Methods
Employees used personal WhatsApp, email, and text for business-related messages, which were not captured or preserved. The unpreserved communications included records of swaps transactions, such as oral and written communications concerning quotes, solicitations, bids, offers, instructions, trading, and prices leading to swap executions.
Supervisory System Inadequacy
The firm failed to implement a diligent system to detect and prevent use of unapproved channels, despite prohibiting them and providing training and policy reminders. Policies and procedures existed but were not enforced effectively, leading to undetected violations over the four-year period.
Fines and Penalties
The total fine is a civil monetary penalty of $500,000.
Key Quotes
"Respondent’s employees communicated using unapproved methods. These written communications were sent and received by Respondent’s employees and included messages related to Respondent’s business as a Commission registrant that were required to be maintained under Commission-mandated recordkeeping requirements." (From the CFTC Order summary)
"In accepting Respondent’s Offer, the Commission recognizes Respondent’s exemplary cooperation. The Commission’s recognition is reflected in a reduced penalty, with Respondent receiving the maximum cooperation mitigation credit toward the full monetary penalty appropriate for these violations." (From the CFTC Order findings)
"Respondent failed to maintain an adequate supervisory system to ensure that its employees complied with Commission recordkeeping requirements and Respondent’s policies and procedures that prohibited business-related communications on unapproved communication methods." (From the CFTC Order legal discussion)
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