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Bank of Nova Scotia Settles Spoofing and Swap Dealing Probe

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The Bank of Nova Scotia (BNS - Free Report) is required to pay $127.5 million as fine to the U.S. Department of Justice ("DOJ") and the Commodity Futures Trading Commission ("CFTC") for the bank’s improper practices in the metals markets, making false statements and swap dealer compliance issues between January 2008 and July 2016.

Division of Swap Dealer and Intermediary Oversight’s director Joshua B. Sterling said, “The CFTC will continue to apply rigorous oversight to all registrants, and firms will be referred to enforcement whenever there is a strong indication that our rules may have been broken.”

Details on Allegations

First, Bank of Nova Scotia is required to pay CFTC a penalty of $77.4 million to settle allegations of spoofing and making false statements. Per the regulator, the bank made many attempts of manipulating and spoofing gold and silver futures contracts between 2008 and 2016.

On being caught in 2018, the bank paid $800,000 to the authorities. However, CFTC claims that at the time the company made multiple false statements to CFTC staff. Thus, the orders issued recently by CFTC include a $17-million penalty for making false and misleading statements to CFTC during the initial spoofing investigation and a penalty of $42 million for spoofing and attempted manipulation. Also, it is required to pay $6.6 million in restitution and $11.8 million in disgorgement.

In a parallel action, Bank of Nova Scotia settled a criminal case with DOJ on the same matter by agreeing to pay more than $60.4 million penalty. Also, it entered a deferred prosecution agreement with DOJ, under which it agreed to cooperate with the department in any ongoing investigations and prosecutions relating to the misconduct. Also, the bank will modify its compliance program whenever necessary and will retain an independent compliance monitor for three years.

The Justice Department and CFTC are keeping close vigilance on big banks, with regard to spoofing-related practices. Notably, other big banks like JPMorgan (JPM - Free Report) , Deutsche Bank (DB - Free Report) and HSBC Holdings (HSBC - Free Report) had to pay penalties for spoofing in 2018.

Lastly, the bank is required to pay a $50-million civil penalty to CFTC to settle a separate enforcement action for swap dealer business conduct, compliance and supervision failures. The bank is said to have shown improper conduct for a seven-year period. The order requires Bank of Nova Scotia to retain an independent monitor.

Bank’s Response

The Bank of Nova Scotia said that it built sufficient reserves in the prior quarters to pay for these resolutions.

It stated, “At Scotiabank, we understand that in order to maintain the trust of our stakeholders, we must adhere to trading-related regulatory requirements and compliance policies.  We are committed to adhering to these standards.”

Our Take

Increased scrutiny on global banks for their business practices has caused many of these firms to pay billions of dollars as fines and compensation to settle lawsuits and probes. Many investors lost their hard-earned money as a result of such business malpractices. Encouragingly, such settlements help restore investors’ confidence in banks and their operations.

Shares of the company have lost 23.8% over the past six months compared with 27.6% decline of the industry it belongs to.

 

 

Currently, Bank of Nova Scotia carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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