Earlier this month, the Commodity Futures Trading Commission (CFTC) settled charges against Deutsche Bank Securities Inc. (DBSI) for attempted manipulation of the U.S. Dollar International Swaps and Derivatives Association Fix (USA ISDAFIX) benchmark. Following an investigation, the CFTC accused DBSI of having made false reports and having attempted to manipulate ISDAFIX to benefit its derivatives positions.
The firm has been ordered to pay a fine of $70 million and ordered to implement a series of remedial measures to strengthen its internal controls and procedures relating to the fixing of interest-rate swaps benchmarks and related supervision of its swaps, options, and exotics desks.
Particularly significant is the fact that the Regulator has looked to enhance market surveillance and benchmark compliance reporting at DBSI, asking the firm to put in place “monitoring systems designed to enhance the detection and deterrence of trading or other conduct potentially intended to manipulate directly or indirectly swap rates, including benchmarks based on interest-rate swaps”.
Similarly, the CFTC has ordered DBSI to “implement a system for reporting, handling, and investigating any suspected misconduct or questionable, unusual, or unlawful activity relating to the fixing of any benchmark based on interest-rate swaps”.
In RIMES’ opinion, these measures are significant as they indicate the CFTC’s preferred approach to best practice in benchmark data management and compliance in the US; and may suggest the future direction of travel for oversight in this space.
What is clear is that the CFTC is taking a leaf out the EU’s book, where new Regulations such as the Benchmarks Regulation (BMR) and the Market Abuse Regulation (MAR) are ushering in a new era of compliance. Firms in the region are now expected to do more than ever to detect and report suspected cases of market abuse, while the rules around administering benchmarks have been significantly tightened. Many of the obligations placed on EU firms by these Regulations are reflected in the remedial action DBSI has been asked to take.
At RIMES, we believe that a global trend is coming into focus: firms will increasingly be asked to proactively mitigate cases of fraud and rate rigging. As a result, firms need to ensure they have in place the right internal governance capabilities. These will need to include market surveillance tools as well as robust and granular benchmark data governance and reporting tools.
Regardless of where in the world your firm is based, you need to future-proof your organization by investing RegTech solutions. The good news is that the market is responding to the new regulatory environment and there are now a range of managed services that can meet the data compliance and governance needs of financial services firms at a lower cost of ownership than in-house alternatives. By acting now, you can get ahead of the trend and be fit to operate in any jurisdiction efficiently and in full compliance with local laws.
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