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CFTC Proposes Amendments to Chief Compliance Officer Duties and Annual Reports

by   |   May 3, 2017

The CFTC is proposing to amend its regulations regarding certain duties of chief compliance officers, or CCOs, of swap dealers, major swap participants and futures commission merchants, which are referred to as registrants. The CFTC is also proposing to amend requirements for preparing and furnishing to the Commission an annual report containing an assessment of the registrant’s compliance activities.

Many of the proposed amendments are meant to harmonize the CFTC’s regulations with similar regulations adopted by the SEC.

The Commission proposes to add a definition of “senior officer” to § 3.1 of its rules to provide greater clarity regarding the CCO reporting line required by Commodity Exchange Act (“CEA”) section 4s(k)(2)(A) and § 3.3(a)(1) of the Commission’s regulations. The CFTC has not previously formally defined this term for purposes of the CCO rules. However, Commission staff has generally interpreted this term to refer to a registrant’s most senior officer, typically the chief executive officer or the equivalent. This interpretation is consistent with the SEC’s definition of “senior officer” in SEC rule 15Fk-1(e)(2). Accordingly, the Commission is proposing to define “senior officer” in new paragraph (j) to § 3.1 as “the chief executive officer or other equivalent officer of a registrant.”

This definition is in keeping with the CFTC’s continued belief that, as stated in the adopting release for the CCO rules, a “direct reporting line” from the CCO to the board of directors or highest executive officer ensures CCO independence. The “chief executive officer” is typically the highest executive level, but the definition includes the phrase “other equivalent officer” to acknowledge that a firm may have a different title for the highest executive officer.

The CFTC’s rules require the CCO to:

  • Establish and administer policies and procedures, including those related to ensuring compliance and remediating noncompliance issues;
  • Resolve any conflicts of interest; and
  • Prepare the CCO Annual Report.

Based on the practical experience gained from four years of implementation, the CFTC has determined that certain CCO rules could be revised to more accurately convey the Commission’s intent with respect to the scope of the CCO’s duties and to further harmonize with the SEC’s recently finalized CCO rules. In this regard, the proposed amendments are intended to maintain and clarify the underlying goal of the CCO’s active engagement in compliance monitoring while reducing regulatory burdens that provide limited corresponding benefit.

The CEA requires the CCO to annually prepare and sign the CCO Annual Report. CFTC rules § 3.3(e) and (f) implement this requirement. The Commission proposes to revise, reorganize, and clarify § 3.3(e) and (f) to further reduce burdens to registrants, incorporate the other proposed amendments, and further harmonize the provisions with the SEC’s parallel rules.