"HSBC's fraudulent and manipulative swap transactions and deception constituted a gross betrayal of the trust of its customers, exclusively for HSBC's benefit at the expense of its customers."

The Commodity Futures Trading Commission (CFTC) has issued two orders targeting:

HSBC Bank USA, NA (HSBC) Fraud and manipulation of swaps and fraud;

HSBC, HSBC Securities (USA) Inc. And HSBC Bank plc (collectively HSBC Affiliates) failed to maintain, save, and produce a recording media messaging platform associated with certain offline communications, typically via chat or social, in accordance with CFTC record-keeping requirements.

The regulator also found that HSBC and HSBC affiliates failed to carefully monitor matters relating to their CFTC registered business with respect to each group of conduct.

"Registrants must update and adjust their internal compliance programs"

HSBC was ordered to pay $45 million for fraud and manipulation of swap transactions and deception and related violations, and HSBC affiliates were ordered to pay $30 million for violations related to offline communications.

In addition, such HSBC entities must take immediate and effective remedial measures to ensure compliance with relevant Commodity Exchange Act (CEA) and Commission regulations, including ensuring proper record keeping and oversight.

CFTC Commissioner Christine Johnson commented on HSBC's "deeply troubling" conduct, hoping market participants understand the seriousness of these violations and note that similar misconduct in the future could be subject to harsher penalties.

"HSBC's fraudulent and manipulative swap transactions and deception constituted a gross betrayal of the trust of its customers, exclusively for HSBC's benefit at the expense of its customers. Executives and senior managers at HSBC knew of and at times participated in this misconduct, highlighting the magnitude of HSBC's compliance and regulatory failures.

"In addition, HSBC failed to have policies and procedures in place to prevent or detect such misconduct, and indeed failed to respond adequately in some instances where it became aware of misconduct." At the same time, the settlement acknowledges that HSBC has taken significant remedial steps since the conduct in question, most of which took place more than five years ago, and contains additional commitments to prevent misconduct around pre-hedging. The order also acknowledges HSBC's substantial cooperation with law enforcement investigating the matter and notes that the civil penalty imposed here ($45 million) is less than the penalty for admitting that cooperation and remedy.

"With respect to the second order issued today, which relates to record-keeping and regulatory failures related to offline communications, the violations by HSBC affiliates are substantially similar to those involved in orders issued last September against a number of other banks and their affiliated futures commissions, and the merchants I spoke about at the time," the statement said. And the settlements announced yesterday with the Bank of Nova Scotia and Scotia Capital USA Inc. (collectively "BNS").

"As I noted at the time, the egregious and pervasive nature of the use of unapproved communications methods - methods that are not monitored, reviewed, and captured as required by CFTC regulations - undermines the record-keeping and regulatory framework we rely on registrants to establish, not just to prevent and detect misconduct," he said. It is to enable the Commission to conduct inspections and investigations and to enforce the regulations of the CEA and the Commission. I continue to stress that registrants must update and adapt their internal compliance programs to keep pace with technological change, but more importantly, ensure a culture of compliance at all levels of their organization, even as the market faces rapid change."