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CFTC fines Merrill Lynch USD1.2m for supervision failure

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The US Commodity Futures Trading Commission (CFTC) has issued an order filing and settling charges against Merrill Lynch for supervision failures relating to futures exchange and clearing fees.

The order says Merrill Lynch failed to diligently supervise its officers, employees and agents’ processing of charges to its customers from at least 1 January 2010 to April 2013.
 
Merrill Lynch is a CFTC-registered futures commission merchant and approved swap firm located in New York.
 
The CFTC order finds that Merrill Lynch’s fee reconciliation process for identifying and correcting discrepancies between the invoices from the exchange clearinghouses and the amounts charged its customers had been faulty for more than two years. As a result, Merrill over-accrued fees from some clients and under-accrued fees from others. These fee reconciliations show that Merrill paid more than USD318 million in exchange and clearing fees to the CME and Chicago Board of Trade during that time, but had unexplained over-accruals of approximately USD451,318 (0.14 per cent of fees paid) from 196 clients.
 
Additionally, the CFTC order finds that Merrill Lynch did not hire qualified personnel to conduct and oversee its fee reconciliations and did not provide any completed procedures manuals regarding fee reconciliations to its staff until at least April 2013. The order also finds that procedures Merrill Lynch did have up until that time were viewed as ”not fit for purpose” because they were “fundamentally flawed.” Merrill Lynch also did not provide any meaningful training to employees regarding how to conduct fee reconciliations until 2013.
 
The CFTC order requires Merrill Lynch to pay a USD1.2 million civil monetary penalty and cease and desist from violating CFTC Regulation 166.3 governing diligent supervision. The order also requires Merrill Lynch to comply with undertakings that include, hiring an outside consulting firm to assist in training staff and reviewing and updating its current procedures regarding exchange and clearing fee reconciliations.

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