- The Commodity Futures Trading Commission (CFTC) on Monday fined Citi $4.5 million for failing to fix a design flaw in its audio preservation system that caused the bank to delete millions of files, including trader recordings that were subpoenaed as part of a federal investigation.
- An employee in 2014 wrote a memo to senior management describing the flaw as a "ticking time bomb" that could — and, in this case, did — lead to mass deletions of audio files, the CFTC said, adding the bank did not timely act on the warning.
- The bank notified the CFTC in December 2018 that its audio preservation system had deleted more than 2.77 million audio files, including recordings of traders the regulator had asked for a year earlier — and that the bank promised it would preserve.
Citi's legacy system have a recent history of disappointing regulators. The Office of the Comptroller of the Currency (OCC) and the Federal Reserve are considering reprimanding the nation's third-largest bank for failing to improve its risk management system, The Wall Street Journal reported this month.
The bank's errant transmission of $900 million last month to creditors of cosmetics firm Revlon exposed some of those shortcomings. A Citi employee failed to manually select the correct option in Citi's software, allowing the loan to be paid in full with interest, the bank said. Colleagues who were supposed to act as a safeguard also failed to catch the error, Citi said.
Citi's loan operation software debuted in 1997. The bank decided to replace the system last year, but the transition is not complete. Many of Citi's units run on their own systems with varying methods of tracking customers and transactions. Regulators require banks to track customers across all of their operations to prevent money laundering, fraud and other issues.
The dust-up with regulators has hastened CEO Michael Corbat's retirement. He now plans to exit in February, leaving the top role to Jane Fraser, the first woman to lead a major U.S. bank. "I believe it is best for the firm for my successor to lead this important work from the beginning," Corbat wrote in a memo regarding the bank's efforts to satisfy regulators, particularly regarding its patchwork of systems.
"Registrants have obligations to diligently supervise all aspects of their business related to their duties, including all systems used to comply with CFTC record keeping requirements, document requests, and subpoenas," James McDonald, head of the CFTC's enforcement division, said in a statement Monday.
Citi neither admitted nor denied the CFTC's findings, but Citi spokesperson Danielle Romero-Apsilos told Bloomberg in an email the bank is "pleased to have the matter resolved."
The regulator imposed the fine against three Citi subsidiaries — Citibank, Citigroup Energy and Citigroup Global Markets — for failure to maintain sufficient internal controls over its technology. The CFTC didn't indicate why it sought Citi trader recordings.