CFTC Files Complaint Against Deutsche Bank Alleging Swap Data Reporting Violations | Practical Law

CFTC Files Complaint Against Deutsche Bank Alleging Swap Data Reporting Violations | Practical Law

The CFTC filed a complaint against Deutsche Bank alleging multiple swap reporting violations, an inadequate business continuity and disaster recovery plan, supervision failures, and violation of a prior CFTC order. In addition, the CFTC and Deutsche Bank filed a joint motion for appointment of a monitor to supervise Deutsche Bank's compliance with CFTC reporting obligations.

CFTC Files Complaint Against Deutsche Bank Alleging Swap Data Reporting Violations

Practical Law Legal Update w-003-2078 (Approx. 4 pages)

CFTC Files Complaint Against Deutsche Bank Alleging Swap Data Reporting Violations

by Practical Law Finance
Published on 25 Aug 2016 • USA (National/Federal)
The CFTC filed a complaint against Deutsche Bank alleging multiple swap reporting violations, an inadequate business continuity and disaster recovery plan, supervision failures, and violation of a prior CFTC order. In addition, the CFTC and Deutsche Bank filed a joint motion for appointment of a monitor to supervise Deutsche Bank's compliance with CFTC reporting obligations.
On August 18, 2016, the CFTC filed a complaint against registered swap dealer Deutsche Bank AG (DB) alleging:
  • Multiple swap reporting violations.
  • An inadequate business continuity and disaster recovery plan.
  • Supervision failures.
  • Violation of a prior CFTC order on swap data reporting (CFTC order).
In addition, the CFTC and DB filed a joint motion for appointment of a monitor to supervise DB's compliance with CFTC swap data reporting obligations.
The complaint arises out of a system outage that occurred in DB's swap data reporting system, which allegedly prevented DB from reporting swap data in violation of the Commodity Exchange Act (CEA) and Parts 43 and 45 of CFTC Regulations (see US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules).
The CFTC alleges that DB contributed to this system outage by failing to employ an adequate business continuity and disaster recovery plan and supervisory systems, as required by Part 23 of CFTC Regulations, and violating provisions of the CFTC order (17 C.F.R. §§ 23.602 and 23.603).
The complaint was filed in the United States District Court for the Southern District of New York.
The CFTC requires registered swap dealers (SDs) to report data for swap transactions to a registered swap data repository (SDR), with requirements for real-time reporting and public availability of swap transaction and pricing data. Counterparties must also report and correct errors and omissions in swap transactions, including cancellations.
On September 30, 2015, the CFTC issued an order filing and settling charges against DB for failing to report cancellations of swap transactions in all asset classes and failing to provide notice to the SDR regarding issues with its cancellation messages. This failure resulted in inaccurate data being represented to the public regarding DB's swap activity. DB consented to the entry of the order and, agreed to:
However, on April 16, 2016, DB's swap data reporting system experienced a system outage that prevented DB from reporting swap data. DB had intended to run a series of updates on its main swap data reporting platform and therefore switched from its main platform to its backup platform to keep data running during the updates. However, certain files on the backup platform were corrupt, and when DB discovered this and switched back to the main platform, the corrupt files were transferred to the main platform, shutting down reporting for multiple asset classes from both platforms. The outage continued until April 21, 2016.
The system outage resulted in large volumes of foreign exchange (FX) swaps and real-time data for certain asset classes being reported late or not being reported at all.
The CFTC complaint alleges violations of the CFTC order from both before and after the April 2016 system outage, as well as additional reporting violations resulting from the outage. The CFTC cited numerous examples of DB's reporting issues, including:
  • Persistent problems with certain data fields for "life events" and invalid legal entity identifiers (LEIs).
  • Incidents regarding problems with messages.
  • Issues relating to attempted system updates.
  • Miscommunication between management and staff regarding system updates and lost data.
According to the CFTC, all of these incidents contributed to the loss of swap data from these time periods.
The complaint specifically alleges that DB:
  • Failed to comply with swap data reporting requirements.
  • Failed to correct errors and omissions in previously reported swap data.
  • Employed an inadequate business continuity and disaster recovery plan.
  • Demonstrated supervision failures.
The CFTC has requested relief in the form of:
  • An order finding that DB violated the CFTC order.
  • An order finding that DB violated the CEA and Parts 43, 45, and 23 of the CFTC's Regulations.
  • An order permanently enjoining DB from violating the CFTC order.
  • An order permanently enjoining DB from violating the CEA and Parts 43, 45, and 23 of the CFTC's Regulations.
  • Civil monetary penalties.
In addition, the CFTC requested the appointment of a monitor to assess and oversee DB's compliance with the CFTC orders and CFTC Regulations. The CFTC and DB submitted a joint motion for appointment of this monitor.
For more information on CFTC swap data reporting requirements, see Practice Notes, US Derivatives Regulation: CFTC Swap Data Reporting and Recordkeeping Rules and US Derivatives Regulation: Practical Guide to Over-the-Counter (OTC) Swap Data Reporting.