CFTC ENFORCEMENT—Interactive Brokers to pay $20M for recordkeeping and supervision failures for widespread use of unapproved communication methods - 03 October 2023

The CFTC held Interactive Brokers accountable for widespread use of Whatsapp and personal text messaging.

The CFTC issued an order settling charges against Interactive Brokers Corp., an introducing broker, and Interactive Brokers LLC, a futures commission merchant, for failing to maintain and preserve records that were required to be kept under CFTC recordkeeping requirements and failing to diligently supervise matters related to their businesses as CFTC registrants. The order requires Interactive Brokers to pay a $20 million civil monetary penalty. The SEC also settled charges against Interactive Brokers, imposing a civil monetary penalty for recordkeeping and supervision violations (In the Matter of Interactive Brokers Corp., CFTC Docket No. 23-56, September 29, 2023).

Recordkeeping and supervision failures. The order found from 2019 to the present, Interactive Brokers failed to stop its employees, including those at senior levels, from communicating using unapproved communication methods, including messages sent via personal text and WhatsApp. The firm was required to keep certain of these written communications because they related to the firm’s CFTC-registered businesses. These written communications generally were not maintained and preserved by Interactive Brokers, and the firm generally would not have been able to provide them promptly to the CFTC if and when requested.

The order also found the widespread use of unapproved communication methods violated Interactive Brokers’ internal policies and procedures, which generally prohibited business-related communication taking place via unapproved methods. Further, some of the same supervisory personnel responsible for ensuring compliance with the firm’s policies and procedures themselves used non-approved methods of communication to engage in business-related communications, in violation of firm policy.

Sanctions. The order requires Interactive Brokers to pay a $20 million civil monetary penalty, to cease and desist from further violations of recordkeeping and supervision requirements, and to engage in specified remedial undertakings.

Statement of Commissioner Johnson. Commissioner Johnson stressed that registrants must continuously update their policies to keep up with the evolving technologies, but policies alone are not enough. “Companies must take seriously the need to create tone at the top that universally emphasizes the importance of compliance at all levels of an organization. Without doing so, the compliance function will exist only on paper, as it apparently did in this case” said Johnson.

Statement of Commissioner Goldsmith Romero. Commissioner Romero issued a statement in support of the order, stressing that the CFTC’s and the SEC’s vigilant enforcement should be a wakeup call for financial institutions to establish a culture of compliance over evasion. “Together with our previous offline communications enforcement actions, the Commission has levied over $1 billion in penalties against 20 Wall Street institutions and large foreign banks, sending a zero-tolerance message to those who seek to evade regulatory oversight. This is combined with over $1.5 billion in penalties from the SEC, for a total of more than $2.5 billion in penalties” said Romero.

This is CFTC Docket No. 23-56.

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