Washington, DC –The U.S. Commodity Futures Trading Commission (CFTC) issued an Order on June 18, 2013, filing and settling charges against ABN AMRO Clearing Chicago LLC (ABN AMRO) of Chicago, Illinois, for failing to segregate or secure sufficient customer funds; failing to meet the minimum net capital requirements, failure to maintain accurate books and records, and failure to supervise its employees.
According to the CFTC Order, during the period March 19, 2009, through January 2012, ABN AMRO reported three instances of under-segregated customer funds in violation of Section 4d(a)(2) of the Commodity Exchange Act (CEA), 7 U.S.C. § 6d(a)(2) (2006 & Supp. V 2012), and Commission Regulation 1.20(a), 17 C.F.R. § 1.20(a) (2011) and one instance of under-secured customer funds in violation of Section 4d(a)(2) of the CEA, 7 U.S.C. § 6d(a)(2) (2006 & Supp. V 2012), and CFTC Regulation 30.7, 17 C.F.R. § 30.7 (2011). Each of these violations was the result of clerical errors and/or a lack of adequate policies and procedures related to customer movement of funds.
The Order also states that during a CME Group routine audit of ABN AMRO’s books and records as they were on the close of business on May 31, 2011, the CME Group found that ABN AMRO had improperly used a customer’s withdrawn warehouse receipts as collateral for margining purposes. Without these warehouse receipts, the customer’s accounts were under-margined on several occasions, and ABN AMRO had to reduce its adjusted net capital by an amount equal to the margin deficits. Once these reductions were calculated, it was determined that ABN AMRO failed to meet the minimum net capital requirements for a single month-end, in violation of Section 4f(b) of the Act, 7 U.S.C. § 6f(b) (2006), and Regulation 1.17(a)(1)(i), 17 C.F.R. § 1.17(a)(1)(i) (2011).
Also, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) Examination staff conducted a limited review of ABN AMRO beginning January 27, 2012. According to the Order, at that time, ABN AMRO was unable to produce a complete and accurate margin report listing for a very limited number of certain types of accounts (e.g., omnibus accounts that offset margin requirements for certain spread transactions). The Order finds that ABN AMRO violated Section 4g(a) of the CEA, 7 U.S.C. § 6g(a) (2006), and CFTC Regulation 1.35(a), 17 C.F.R. § 1.35(a) (2011), when it failed to keep accurate books and records sufficient to determine the margin status of each customer.
The Order finds that each of these violations was a result of ABN AMRO’s insufficient controls, reflecting a lack of supervisory controls over commodity interest accounts and/or other activities of its partners, employees, and agents relating to its business as a Commission registrant in violation of CFTC Regulation 166.3, 17 C.F.R. § 166.3 (2011).
Based on these violations of the CEA and CFTC Regulations, the Order imposes a $1 million civil monetary penalty, a cease and desist order, and requires ABN AMRO to retain an independent consultant to review and evaluate the effectiveness of its existing internal controls and policies and procedures and adopt any recommendations for improvement made by the consultant.
The CFTC thanks the CME Group for its assistance with this matter.
CFTC Division of Enforcement staff responsible for this action are Allison Baker Shealy, John Einstman, Paul G. Hayeck, and Joan Manley. Kevin Piccoli, Melissa Hendrickson, Carrie Coffin, and Michael Guritz of DSIO also assisted in this matter.