Two Citi swap-dealing units have settled with the CFTC over charges that they failed to properly report LEI data to a swap data repository.
Citibank, N.A. (CBNA) and Citigroup Global Markets Ltd. (CGML) have settled with the CFTC on charges that they failed to properly report Legal Entity Identifier (LEI) information about swap transactions properly to a swap data repository (SDR).
CBNA acts as a swap dealer and has been registered with the CFTC since December 31, 2012 while CGML is a non-U.S. swap dealer “with a principal place of business in London, United Kingdom, that has been provisionally registered with the CFTC in that capacity since October 9, 2013,” according to the CFTC. “As provisionally registered swap dealers, CBNA and CGML are required to comply with certain recordkeeping and reporting requirements related to their swap transactions.”
The CFTC issued an order filing and simultaneously settled charges against Citi. The order “requires Citi to pay a $550,000 civil monetary penalty and to comply with undertakings to improve its LEI swap data reporting,” officials say.
In particular, Citi did not “establish the electronic systems and procedures necessary to do so, failing to correct errors in LEI data previously reported to an SDR, and failing to perform supervisory duties diligently with respect to LEI swap data reporting, all in violation of CFTC Regulations,” CFTC officials say.
CFTC regulations specify “the reporting the LEI of each counterparty to a swap. An LEI is a unique, 20-character, alpha-numeric code, used to uniquely identify legally distinct entities that act as counterparties to swap transactions, among other financial transactions. The reporting requirements are designed to enhance transparency, promote standardization, and reduce systemic risk,” according to the CFTC.
The CFTC’s case cites that “from at least April 2015 to December 2016, Citi failed to report LEIs properly for tens of thousands of swaps.”
Regulatory officials say that the LEI reporting errors “stemmed from a design flaw in its swap data reporting systems with respect to swap continuation data.” Citi’s swap data reporting systems were not designed “to re-report trades based solely upon a change in a counterparty’s LEI, absent another event that required the trade to be re-reported. As a result, Citi failed to report updated LEI information in the continuation data for thousands of swaps that were open as of April 2015.”
CFTC officials add that the design flaw in Citi’s swap data reporting systems “contributed to Citi failing to correct errors or omissions in its swap data reporting in a timely manner.”
The CFTC order reports that Citi “violated its reporting obligations by reporting ‘Name Withheld’ as the counterparty identifier for tens of thousands of swaps with counterparties in certain foreign jurisdictions,” according to the CFTC.
The CFTC recognizes differences between its reporting requirements “and non-U.S. privacy, secrecy, and blocking laws,” and the regulator’s Division of Market Oversight (DMO) can issue “certain time-limited and conditional no-action relief from LEI reporting requirements.”
But such no-action relief requires the reporting party to use other than an LEI, “an alternative counterparty identifier, a ‘Privacy Law Identifier’ or PLI,’ that is unique, static, and consistent for each counterparty,” CFTC officials add.
In addition, the CFTC reports that CBNA and CGML ran afoul of their supervisory duties “with respect to LEI swap data reporting by failing to enforce existing policies, failing to adequately address compliance with no-action relief where they sought to rely upon such relief, and failing to detect repeated LEI reporting errors.”
In closing the case, CFTC officials acknowledge that Citi officials cooperated with the investigation.
In response to requests for comment from FTF News, a spokesman issued the following statement: “We are pleased to have resolved this matter.”
The CFTC’s data and reporting branch in DMO oversees the regulator’s swap data reporting regime. This case started with a referral by DMO and the data and reporting branch “provided substantial assistance throughout the Division of Enforcement’s investigation,” officials add.