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From Securities Regulation Daily, August 22, 2018

CFTC amends rules on CCO duties and reporting to align with SEC

By Lene Powell, J.D.

The CFTC unanimously adopted final rule amendments to clarify and simplify the duties of chief compliance officers (CCOs) at futures commission merchants, swap dealers, and major swap participants. The amendments include specific changes to harmonize the CFTC’s requirements with SEC requirements for SEC registrants.

“The rule continues to impose a duty on CCOs to resolve matters but within the practical limits of their position at the CFTC-registered entity,” said Chairman J. Christopher Giancarlo. “The rule also continues to impose a duty for the CCO to undertake an annual review but reduces the burdens associated with the review, which will allow the CCO to devote more time and resources to compliance activities at the registrant.”

CCO duties and reporting. The amended provisions include:

  • A definition of “senior officer” that is consistent with the CCO having a direct reporting line to the board of directors or the highest executive officer;
  • A requirement that the CCO administer policies and procedures of the registrant. The CFTC particularly noted that it expects the CCO to be “actively engaged” in administering a firm’s compliance policies and procedures, because the Dodd-Frank Act increased the CCO’s level of engagement beyond the customary and traditional advisory role of a CCO;
  • A duty to take reasonable steps to resolve conflicts of interest;
  • A duty to ensure that the registrant maintains written policies and procedures (WPPs) reasonably designed to achieve compliance;
  • A duty to remediate noncompliance issues;
  • Changes to the requirements for the CCO annual report, including the addition of qualifying language for the CCO’s certification.

Harmonization with SEC. The CFTC noted that although the CFTC regulates derivatives markets and the SEC regulates securities markets, many of the participants in these markets are the same, and similar activities are often regulated by each agency in similar ways under similar statutory mandates. Accordingly, the changes include a number of specific amendments to further align CFTC requirements with SEC requirements under Rule 15Fk-1.

The CFTC said it expects that the changes will reduce burdens on CCOs and improve overall compliance by applying a reasonableness standard to CCO responsibilities, rather than deterring effective CCO activities for fear of incurring liability. And, by further harmonizing the CFTC’s and SEC’s CCO duties, CCOs of dual SEC-CFTC registrants should be able to fulfill their duties more efficiently and cost effectively.

MainStory: TopStory CommodityFutures Derivatives ExchangesMarketRegulation FinancialIntermediaries FormsFilings Swaps

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