Washington D.C. – The Commodity Futures Trading Commission (CFTC) has levied a $50 million penalty against The Bank of Nova Scotia (BNS) for a series of compliance failures related to its swap dealer activities. The charges stem from violations occurring over a seven-year period, beginning around December 31, 2012.
The CFTC order, issued August 19, 2020, details that BNS failed to adhere to swap dealer business conduct standards regarding pre-trade mid-market marks (PTMMMs). Specifically, the bank allegedly provided inaccurate, untimely, or missing PTMMMs to its counterparties, effectively concealing markups on swap transactions.
Beyond the inaccurate pricing data, the CFTC found deficiencies in BNS’s counterparty onboarding processes, audio recordkeeping, and reporting to its Chief Compliance Officer. The investigation also revealed a failure to diligently supervise swap dealer activities.
Adding to the severity of the charges, the CFTC determined that BNS made false and misleading statements to investigators concerning the preservation of audio recordings and the supervision of its New York base metals desk in late 2017. These statements allegedly hindered the CFTC’s investigation into the compliance failures.
As part of the settlement, BNS is required to cease and desist from further violations of the Commodity Exchange Act and CFTC regulations. The bank must also remediate the identified compliance failures and retain an independent monitor for three years to oversee the corrective measures and ensure future compliance. The monitor will report directly to the CFTC’s Division of Enforcement and the Division of Swap Dealer and Intermediary Oversight.
The CFTC acknowledged the assistance of the National Futures Association in the investigation. While the Commission acknowledged grounds to potentially suspend or revoke BNS’s registration, it has deferred any such action contingent upon the bank’s fulfillment of the outlined undertakings.
Source: CFTC.gov
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