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The Commodity Futures Trading Commission (CFTC) has fined Interactive Brokers for failing to accurately assess exchange fees for customer trades. As a result, customers were overcharged fees while the firm paid lower applicable fees to spread trades.
As standard practice, customer transactions are subject to trading and clearing fees normally charged by the exchanges, where companies such as Interactive Brokers would receive an invoice from the exchange and charge the customer, with fees varying based upon applicable rates, surchargers and fee structures associated with different products and trading volumes. According to the order, Interactive Brokers unintentionally charged a higher fee to its final customer, while it was charged lower fees by the exchange.
Interactive Brokers, a registered futures commission merchant (FCM), failed to update the exchange fees charged to customers, assess those fees and identify or provide oversight of the process for nearly six years. In addition, from January 2015 to December 2021, Interactive Brokers overcharged customers a total sum of over $700K, with current and former customers ultimately refunded or provided other instructions.
NFA regulated entities, such as introducing brokers, commodity pool operators, commodity trading advisors and FCMs must clearly disclose to customers, in writing, fees and charge in accordance with NFA Compliance Rule 2-9 and CFTC Rule 166.3. Under these rules, members are also required to provide supervision of company activities by regularly reviewing the adequacy of supervisory procedures, including fees and expenses charged to customers.
Interactive Brokers has been subject to intense scrutiny from the regulators for the past few years and some of the other deficiencies found in the US for the past few years can be found below:
|NFA||Apr-22||$ 250,000.00||Improperly canceling retail customer forex orders which were not favorable to the affected customers.|
|CFTC||Sep-21||$ 1,750,000.00||Failure to supervise FCM activities with respect to their electronic trading system to handle negative prices for certain oil future contracts.|
|NYSE||Jul-20||$ 237,500.00||Several option orders executed and inadvertently identified as customer orders, rather than the professional customer code.|
|CFTC & SEC||Aug-20||$ 11,500,000.00||Failure to supervise employee handling of several commodity trading accounts subject to recent enforcement actions and failure to maintain an adequate AML Program.|
|FINRA||Aug-20||$ 15,000,000.00||Failed to develop and implement an AML program reasonably designed to scale in line with growth.|
|FINRA||Aug-18||$ 5,500,000.00||Failed to establish, maintain, and enforce a supervisory system, including written supervisory procedures designed meet FINRA requirements.|
As part of an annual compliance review, companies should be taking the opportunity to revisit their fees and fees schedule in line with any changes within the business or products offered alongside other areas of compliance, documenting the review and decisions made.