Four (plus one) Takeaways from the CFTC Annual Enforcement Report
In its annual report for fiscal year 2019, the CFTC Division of Enforcement (‘DofE’) described activity that is well in line with recent trends but also hammered home its intent to be tough on wrongdoers as the Commission continues striving to create a culture of compliance among industry participants. While there was a slight dip in the total number of cases brought, other areas saw an increase, most notably in the number of instances of cooperation between the agency and other regulators or criminal authorities.
CFTC Division of Enforcement priorities:
Preserve market integrity
Promote individual accountability
Increase cooperation with other regulators and criminal authorities
Focus on spoofing, cooperation and coordination
Among the key takeaways from the report:
- Spoofing and other manipulation cases were down YOY, but the long-term trend is pointed up. Manipulation is the key focus of the agency with nearly two-thirds of all actions taken involving commodities fraud, manipulative conduct or spoofing.
- Fostering a culture of cooperation remains a key focus of the agency. The DofE continues to employ a two-pronged strategy of charging not just traders, but responsible individuals such as CEOs and CCOs and, at the same time, rewarding whistleblowers.
- 70% of enforcement actions came after the new Chairman, Heath Tarbert, came on board. It’s highly likely that most of these actions originated before he took charge, but the agency clearly wants to show it remains vigilant. The simple message: “Tough, but fair – that’s been our response to those who break the rules,” said CFTC Chairman Heath P. Tarbert.
- In FY 2019, the CFTC filed more actions in parallel with criminal authorities than in any prior year. This seems to be the new normal; the 30 actions in the past two years (16 in 2019 and 14 from 2018) are more than the previous seven years combined.
Plus one: looking deeper through “Other Themes”
The DofE took pains to call out several important items in an “Other Themes” section at the end of the report. These six points provide a more detailed look at the priorities of the agency as well as give an indication of what future enforcement priorities might entail. Several that stood out were:
- Risk management and compliance programs: Focusing on the adoption and maintenance of best practices is a clear priority. The agency uses its internal assessment of the efficacy of these programs when it comes time to determine the size and scope of penalties.
- Digital assets: In addition to pursuing multiple cases of fraud involving digital assets such as cryptocurrencies, the agency is paying close attention to developments in these nascent markets.
- Data analytics: In a signal to sophisticated fraudsters, the DofE made sure to emphasize that it has engaged in a multi-year effort to enhance its data analytics and is now able to detect forms of misconduct it previously was unable to spot.
Transparency backed up with stiff resolve
In publishing an annual report of enforcement activity along with its examination priorities earlier in 2019, the CFTC is sending a clear message as to both the content of its activities as well as the seriousness of its intent and resolve.
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