CFTC imposes $500,000 penalty against NY investment firm for recordkeeping violations

The Commodity Futures Trading Commission (CFTC) recently issued an order which simultaneously filed and settled charges against XP Investments US, LLC, a Delaware corporation (XP) based in New York which provides brokerage services for non-deliverable forwards and other commodity interests.  The CFTC accused XP of failing to maintain records of certain audio recordings for May and June of 2019 which, as a registered introducing broker, the company was required to keep for at least a year under the Commodity Exchange Act (CEA) and CFTC regulations. Those records included communications concerning quotes, solicitations, bids, offers, instructions, trading, and/or prices leading to transactions in commodity interests and/or related forward transactions. Without admitting or denying the findings or conclusions of the Commission, XP agreed to pay a civil monetary penalty of $500,000 and cease and desist from further violations of the CEA and CFTC regulations.

According to the CFTC’s order, which was filed on September 23, 2022, the recordkeeping failures occurred when XP relocated its New York office in 2019 and then used an audio recording system in the new office location that was improperly installed by a third-party vendor.  According to the order, the recording system’s outage warning system failed to indicate that there were recording errors at the new office and “spot checks” conducted of the audio call recording system by XP failed to reveal the recording issue. These mishaps allegedly caused XP to have inconsistent and incomplete recordings of audio calls for 25 days in May and June of 2019.  When XP discovered the audio recording issue in June of 2019, it promptly took steps to fully remediate the issue.  The order explains that XP applied a technical fix to  properly sync its recording system, enhanced its systems to distinguish between phone speaker and handset calls; replaced its third-party vendor; formalized its process of spot-checking recordings; and, instituted a surveillance trade reconstruction initiative which tests the capture of recordings attendant to trades.  Because XP failed to retain 25 days of required audio recordings, the CFTC found that XP violated Section 4g(a) of the CEA and CFTC Regulations 1.31(b)(2) and 1.35(a)(1)(iii).

CFTC Press Release | CFTC Order

 
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