Washington, D.C. – Wells Fargo Bank, N.A. has been slapped with a $14.475 million penalty by the U.S. Commodity Futures Trading Commission (CFTC) for violating business conduct standards related to a foreign exchange transaction and subsequent systemic failures. The CFTC issued an order detailing the charges on Friday, November 8, 2019.
The investigation revealed that in August 2014, Wells Fargo entered into a $4 billion U.S. dollar to $4.347 billion Canadian dollar foreign exchange (FX) forward contract. The agreement stipulated pricing based on the weighted average spot rate of Canadian dollars acquired by Wells Fargo. However, the bank lacked a system to accurately track trades used to fulfill the counterparty’s order.
Instead of calculating the agreed-upon weighted average price, Wells Fargo employees – including members of the FX management team – allegedly selected a rate they believed would be acceptable to the counterparty, rather than an accurate reflection of market conditions. The bank then provided the counterparty with a misleading spreadsheet purporting to show the calculation, which was based on untracked trades.
The CFTC further found that from August 2014 through May 2018, Wells Fargo failed to implement and monitor policies and procedures to ensure fair and balanced communication with its counterparties. This systemic failure allowed the initial misconduct to persist and created a risk of further violations.
As a result of the findings, Wells Fargo is required to pay a $10 million civil monetary penalty and $4.475 million in restitution. The bank must also cease and desist from further violations of the CFTC’s business conduct standards.
“The CFTC’s business conduct standards are critical to ensuring our derivatives markets operate with trust and integrity,” said CFTC Director of Enforcement James McDonald. “The CFTC will continue to protect our markets through vigilant investigation and prosecution of misconduct.”
The National Futures Association assisted the CFTC in the investigation. The case was led by CFTC staff members Saadeh Al-Jurf, Luke Marsh, and Paul G. Hayeck.
Source: CFTC.gov
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