Washington D.C. – Citibank N.A., Citigroup Energy Inc., and Citigroup Global Markets, Inc. (collectively, the Citi entities) have agreed to a $4.5 million settlement with the Commodity Futures Trading Commission (CFTC) for failing to adequately supervise their audio preservation system, according to an order issued September 28, 2020.
The CFTC charged the Citi entities with violating CFTC regulations related to recordkeeping and diligent supervision. Citibank operated the audio preservation system for all three entities, which was intended to maintain recordings as required by the CFTC. However, a known design flaw caused the system to delete over 2.77 million audio files belonging to 982 users.
Critically, the deleted files included recordings responsive to a CFTC subpoena issued in December 2017, concerning audio recordings of Citibank traders. Citibank initially assured the Division of Enforcement that the requested recordings were being preserved, leading investigators to agree to prioritize the production of electronic communications. When asked to produce the audio recordings in October 2018, Citibank revealed the deletion three weeks prior, rendering the subpoena unfulfillable.
The design flaw, documented in a 2014 internal memo by a Citibank employee, created a “ticking time bomb effect” that could lead to automatic deletion if the system wasn’t properly configured. Despite this warning, Citibank failed to address the issue and implement adequate internal controls to prevent the loss of crucial recordings.
“Registrants have obligations to diligently supervise all aspects of their business related to their duties, including all systems used to comply with CFTC recordkeeping requirements, document requests, and subpoenas,” stated James McDonald, Director of the Division of Enforcement. “These regulations exist to promote the integrity of the marketplace. When registrants fail to meet their supervision obligations, they will be penalized.”
The $4.5 million civil monetary penalty will be distributed amongst the Citi entities as determined by the CFTC. The case highlights the importance of robust recordkeeping systems and diligent supervision within financial institutions subject to CFTC regulations.
Source: CFTC.gov
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