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The Commodity Futures Trading Commission (CFTC) has fined CHS Hedging a civil monetary penalty of $6.5 million for AML, recordkeeping, risk management, and supervision violations.
According to the CFTC, these violations are largely the result of CHS Hedging’s inability to put in place a sufficient AML programme, particularly when it came to a futures and options trading account that was under one of its clients’ supervision. Additionally, CHS Hedging did not set risk-based limits for that customer’s trading.
Acting Director of Enforcement Gretchen Lowe said: “The Commodity Exchange Act and accompanying regulations require FCMs to have and actually implement adequate AML and risk management policies and procedures. These are critical components to ensure customers are protected from fraud, and the CFTC will not hesitate to take action and require significant sanctions and remediation.”
As per the CFTC, one of CHS Hedging’s clients owned and operated a ranching firm and other such businesses, also engaged in speculative trading from January 2017 to December 2020 and suffered millions in losses in the ranching company’s account at CHS Hedging.
CHS Hedging received net margin payments from the client and the ranching firm totalling more than $147 million in the span of four years.
CHS Hedging accepted the client’s margin payments without fully examining the sources of the funds or filing a Suspicious Activity Report.
The CFTC determined that CHS Hedging’s failure to set and enforce proper trading restrictions on customer accounts contributed to the trading losses. These trading limits were inconsistent with the client’s financial capabilities and hedging requirements.
The user was able to continue speculative trading and incur further losses since CHS Hedging even lifted those limitations due to the individual customer’s habit of exceeding trading limits.
Additionally, CHS Hedging is accused of failing to preserve certain records needed for pre-trade communications and of failing to immediately produce those records when asked to do so by CFTC personnel.