Release Number 8701-23
CFTC Orders HSBC to Pay a $30 Million Penalty for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods
May 12, 2023
Washington, D.C. — The Commodity Futures Trading Commission today issued an order simultaneously filing and settling charges against HSBC Bank USA, N.A., a provisionally registered swap dealer, HSBC Securities (USA) Inc., a futures commission merchant, and HSBC Bank plc, a provisionally registered swap dealer (collectively HSBC Affiliates). The order charges HSBC Affiliates with failing to maintain, preserve, or produce records that were required to be kept under CFTC recordkeeping requirements, and failing to diligently supervise matters related to their businesses as CFTC registrants.
The HSBC Affiliates admit the facts detailed in the order, are ordered to cease and desist from further violations of recordkeeping and supervision requirements, and are ordered to engage in specified remedial undertakings.
“Recordkeeping requirements are critical to the Commission’s oversight of registrants, and when a registrant disregards its obligations, it undermines the Commission’s ability to effectively and efficiently conduct examinations and investigations,” said Director of Enforcement Ian McGinley. “As this action and previous actions demonstrate, the Commission remains focused on diligently enforcing compliance with recordkeeping, supervision and other regulatory obligations.”
The order finds HSBC Affiliates for a period of years, failed to stop their employees, including those at senior levels, from communicating both internally and externally using unapproved communication methods, including messages sent via personal text and WhatsApp. The HSBC Affiliates were required to keep certain of these written communications because they related to the HSBC Affiliates’ businesses as CFTC registrants. These written communications generally were not maintained and preserved by the HSBC Affiliates, and the HSBC Affiliates generally would not have been able to furnish them promptly to the CFTC when requested.
The order further finds the widespread use of unapproved communication methods violated HSBC’s own policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the very same supervisory personnel responsible for ensuring compliance with the firms’ policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.
The order finds the Division of Enforcement became aware during investigations into certain of HSBC’s trading that the institutions’ traders had been using unapproved communication methods on their personal devices for business-related communications. Following a review, HSBC acknowledged to CFTC staff that it was aware of widespread and longstanding use by its employees of unapproved methods to engage in business-related communications.
As a result of each registrant’s failure to ensure that its employees—including supervisors and senior-level employees—complied with communications policies and procedures, each registrant failed to maintain hundreds if not thousands of business-related communications, including CFTC-required transaction records and pre-execution communications in connection with its commodities and swaps businesses. Each registrant thus failed diligently to supervise its business as a CFTC registrant or registrants, in violation of CFTC recordkeeping and supervision provisions.
Related Civil Action
The Securities and Exchange Commission (SEC) announced entry of orders filing and settling charges against an SEC-registered HSBC affiliate and imposing civil monetary penalties for related recordkeeping and supervision violations.
The Division of Enforcement staff responsible for this matter are James Wheaton, Devin Cain, Benjamin Rankin, Alejandra de Urioste, R. Stephen Painter, Jr., Lenel Hickson, Jr., and Manal M. Sultan, and former staff members Candice Aloisi and Gabriella Geanuleas.