CFTC Orders Wells Fargo to Pay Over $14 Million for Violating Swap Dealer Business Conduct Standards

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CFTC

CFTC Orders Wells Fargo to Pay Over $14 Million for Violating Swap Dealer Business Conduct Standards

November 14, 2019

 — The U.S. Commodity Futures Trading Commission today issued an order filing and settling charges against Wells Fargo Bank, N.A. for violating multiple swap dealer business conduct standards. Specifically, Wells Fargo failed to deal with a counterparty in a fair and balanced manner based on principles of fair dealing and good faith.  Wells Fargo also failed to implement and monitor systems to ensure compliance with policies and procedures regarding communicating with counterparties in a fair and balanced manner. The order requires Wells Fargo to pay a civil monetary penalty of $10 million, restitution of $4.475 million, and to cease and desist from violating the CFTC’s business conduct standards.

James McDonald, CFTC’s Head of Enforcement
James McDonald, CFTC’s Head of Enforcement

“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 order specifically finds that on August 27, 2014, Wells Fargo entered into a foreign exchange (FX) forward contract with a counterparty to exchange $4 billion U.S. dollars for $4.347 billion Canadian dollars that was to be priced at the weighted average spot rate, plus an adjustment, of the Canadian dollars Wells Fargo acquired in the spot market on that day. Wells Fargo’s employees, including senior members of the FX management team, were aware that the deal required the bank to provide a weighted average rate based on actual spot trades.  Wells Fargo, however, did not have a system in place to accurately track trades used to fill the counterparty’s order. As a result, Wells Fargo failed to communicate to its counterparty relevant information regarding the transaction in a fair and balanced manner. In particular, rather than calculate the agreed upon weighted average price, Wells Fargo instead picked a rate it believed would be in the range of the true weighted average and thus acceptable to the counterparty. Wells Fargo also provided the counterparty with a spreadsheet claiming to calculate the rate, but that did not, in fact, reflect actual trades because of its inability to track the relevant trades.

Furthermore, the order finds that, from August 2014 until May 2018, Wells Fargo failed to implement and monitor policies and procedures designed to ensure that it communicated with counterparties in a fair and balanced manner.

The CFTC thanks the National Futures Association for its assistance in this matter.

The Division of Enforcement staff members responsible for this case are Saadeh Al-Jurf, Luke Marsh, and Paul G. Hayeck.

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