CFTC Fines Top Tier Bank for Legal Entity Identifier (LEI) violations

CFTC logo

It sounds like MiFID II’s mantra of ‘No LEI, No Trade’ has travelled across the Atlantic and resonated with the CFTC. 

Last week it was announced that a tier one bank has been fined $US 550,000 for failing to update its counterparty LEI information.  Whilst the CFTC’s regulation is not as strict as its European cousin’s, it does expect that LEI information is provided when it becomes available. 

Although it’s not one of the largest fines they have ever issued it does give us a new insight to the sort of checks they are performing.

Specifically, the CFTC’s investigation found that a design flaw in the bank’s architecture failed to update the regulator when an LEI became available for a counterparty and all other aspects of the contract remained the same.  Full details of the penalty can be found on the CFTC website

On first thought it may sound like updating the counterparty identifier is a simple change to implement but dig a little deeper and you can see how it is an easy pitfall to find yourself in.   A small firm that does not have an LEI will not be the reporting party when they are facing a tier one bank.  Realistically, they will be paying little or no attention to their derivatives reporting and have little incentive to notify the bank when they acquire an LEI.  The bank could easily have hundreds of similar small firm clients and tens of thousands of transactions to report each day.  Unless a dedicated process exists to check for an updated LEI, it is a simple thing to miss, especially when none of the economics of the contract change.

Is your counterparty LEI information being reported correctly? Kaizen’s ReportShield™ accuracy testing and reference data testing identifies all counterparty errors so they can be remedied quickly and easily.  Please get in touch to discuss your LEI or MiFID II reporting challenges.