Corporate & Financial Weekly Digest

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On September 10, the Commodity Futures Trading Commission’s Division of Enforcement (Division) issued guidance outlining factors to consider when evaluating compliance programs as part of enforcement matters. The Division had previously issued guidance directing staff to take into consideration the effectiveness of a firm’s compliance program when recommending civil monetary penalties and non-monetary terms of a resolution. The September 10 guidance sets forth factors the Division will consider when evaluating the effectiveness of a compliance program, including whether the program was reasonably designed to “prevent the underlying misconduct at issue,” “detect the misconduct” and “remediate the misconduct.” The guidance additionally…
The Commodity Futures Trading Commission will hold an open meeting on September 17, from 10:00 a.m. to 3:00 p.m. ET, to consider adopting several final rules, including with respect to: registration with alternative compliance for non-US derivative clearing organizations; amendments to real-time public reporting requirements under the CFTC’s Part 43 rules; amendments to swap data recordkeeping and reporting requirements under the CFTC’s Part 45 rules; and amendments to the CFTC’s regulations relating to certain swap data repository and data reporting requirements. The CFTC also will consider issuing a supplemental notice of proposed rulemaking with respect to its Part 190 bankruptcy…
On August 31, the Commodity Futures Trading Commission’s (CFTC) Division of Swap Dealer and Intermediary Oversight (DSIO) issued a no-action letter (No-Action Letter 20-23) providing additional relief to swap dealers (SDs) and other market participants related to the industry-wide initiative to transition from swaps that reference the London Interbank Offered Rate (LIBOR) and other interbank offered rates (IBORs) to swaps that reference alternative benchmarks. No-Action Letter 20-23 revises and supersedes previously issued CFTC Staff Letter 19-26, discussed further here, modifying certain no-action positions and providing additional no-action relief: (1) resulting from the announced intention of certain central counterparties (CCPs)…
On August 31, the Commodity Futures Trading Commission’s (CFTC) Division of Market Oversight (DMO) issued a no-action letter (No-Action Letter 20-24) providing time-limited relief from the trade execution requirement for certain swaps. No Action Letter 20-24 provides that until December 31, 2021, DMO will exempt from the CFTC’s trade execution requirement swaps that are amended or created by an “IBOR Transition Mechanism” for the sole purpose of replacing an interbank offered rate (IBOR) with an alternative benchmark. Under section 2(h)(8) of the Commodity Exchange Act (CEA), swap transactions that are subject to the clearing requirement must be executed on a…
On August 31, the Commodity Futures Trading Commission’s (CFTC) Division of Clearing and Risk (DCR) issued a no-action letter (No-Action Letter 20-25) relating to the swap clearing requirement promulgated pursuant to section 2(h)(1)(A) of the Commodity Exchange Act (CEA) and codified in Part 50 of the CFTC’s regulations (Clearing Requirement). No-Action Letter 20-25 revises and supersedes in its entirety previously issued CFTC Staff Letter 19-28, which was requested by the Alternative Reference Rates Committee (AARC) and applied to uncleared interest rate swaps (IRS) that were executed prior to an applicable Clearing Requirement compliance date for which swap counterparties subsequently amend…
On August 20, the National Futures Association (NFA) issued Notice I-20-31 highlighting recently published FAQs addressing customer due diligence requirements for covered financial institutions. The FAQs clarify the regulatory obligations of covered financial institutions with respect to obtaining customer information, establishing a customer risk profile and performing ongoing monitoring of the customer relationship. The FAQs are available here. Notice I-20-31 is available here.…
On August 14, the Commodity Futures Trading Commission announced that it has approved two proposals to amend margin requirements for swap dealers (SDs) and major swap participants (MSPs). The first proposal would revise the method for determining if certain entities are subject to initial margin requirements and the timing for compliance with the initial margin requirements after the end of the phased compliance schedule. This proposal would create better alignment with the Basel Committee on Banking Supervision and the International Organization of Securities Commissions’ margin requirements for non-cleared derivatives. The second proposal would permit the application of separate minimum transfer…
On August 17, the National Futures Association (NFA) notified its members that amendments to NFA Compliance Rule 2-30(b) regarding risk disclosure statements for security futures contracts became effective on August 14. The amendment to NFA Compliance Rule 2-30(b) updates and replaces the prior risk disclosure statement and creates a 2020 supplement. The updated security futures risk disclosure statement reflects recent amendments to CFTC Regulation 41.25, which governs position limits and position accountability for security futures contracts. NFA members and associates will need to provide either the updated statement or the 2020 supplement to all customers that have been approved to…
On August 4, the Commodity Futures Trading Commission’s Office of Customer Education and Outreach (the OCEO) issued a Customer Advisory regarding suspicious precious metal recommendations. Due to the relaxed rules under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), unregistered gold and silver dealers have increasingly been encouraging investors (1) to convert their retirement savings into investments of gold or silver coins or into self-directed gold individual retirement accounts, and (2) to make leveraged purchases of physical metals. These schemes often involve expensive premiums and hidden one-time or monthly fees. Further, physical metals such as collectible coins may…
On July 22, the Commodity Futures Trading Commission adopted rules (Final Rules) that set minimum financial capital requirements for swap dealers (SDs) and major swap participants (MSPs) that are not subject to prudential regulation (each, a “Covered Swap Entity” or CSE). The capital requirements were originally proposed in 2016, as explained in more detail here. The core financial requirement is capital equal to the greatest of $20 million or 8 percent (and in some cases, 2 percent) of the initial margin required on the CSE’s cleared and uncleared swaps, security-based swaps, futures and foreign futures, but the rules permit…
At an open meeting on July 22, the Commodity Futures Trading Commission heard presentations on three proposals for changes to the margin requirements for uncleared swaps. The proposed changes, which originate from recommendations made by the Margin Subcommittee of the CFTC Global Markets Advisory Committee (GMAC), are as follows: A proposal to amend the definition of Material Swaps Exposure (MSE) to change the calculation of MSE from June, July and August of the prior year to March, April and May of the then current year, with the initial margin start date in every year after 2022 being changed to September…
On July 17, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) announced that it has extended the time period for the no-action relief provided in CFTC Staff Letter No. 20-16 to registrants listing new principals and to applicants for registration as associated persons (APs) from the requirement to submit a fingerprint card. The relief extends until September 30 or any earlier date on which the National Futures Association (NFA) resumes the processing of fingerprints. Principals and APs relying upon the relief will still be required to submit their fingerprints to NFA within 30 days of…
In a release on July 16, the Commodity Futures Trading Commission (CFTC) encourages financial institutions to use a standardized approach to assess and improve their cybersecurity preparedness. Although the CFTC does not endorse any particular tool, the CFTC specifically identifies various organizations providing best practices to the industry, including the National Institute of Standards and Technology, the International Organization for Standardization, the Information Systems Audit and Control Association and the Information Technology Infrastructure Library. The CFTC also lists a number of standardized tools that support financial institutions in their self-assessment activities, including the Financial Services Sector Coordinating Council Cybersecurity Profile,…
On June 29, the Commodity Futures Trading Commission’s (CFTC) Technology Advisory Committee (TAC) announced that it will hold a public meeting on July 16. At this meeting, the TAC will hear presentations from the TAC subcommittees on Automated and Modern Trading Markets, Distributed Ledger Technology and Market Infrastructure, Virtual Currencies and Cybersecurity. The meeting will be held via conference call in accordance with CFTC’s implementation of social distancing due to COVID-19. More information is available here.…
On July 8, the Commodity Futures Trading Commission (CFTC) announced that its 2020-2024 Strategic Plan (Strategic Plan) is now final. The Strategic Plan was unanimously approved by the CFTC in May and was subject to a 30-day comment period that ended in June. The Strategic Plan focuses on the following five strategic goals, each with clearly defined objectives: Strengthening the resilience and integrity of the derivatives markets while fostering their vibrancy; Regulating the derivatives markets to promote the interests of all Americans; Encouraging innovation and enhancing the regulatory experience for market participants at home and abroad; Being tough on those…
On July 8, the National Futures Association (NFA) issued Notice I-20-27 to remind member firms that the compliance date for NFA’s Swaps Proficiency Requirements (Requirements) is January 31, 2021 (Compliance Date). NFA Members with associated persons (AP) required to satisfy the Requirements must ensure that covered individuals are in compliance by the Compliance Date. Individuals who do not satisfy the Requirements by the Compliance Date will be unable to engage in swaps activities until they have done so. NFA encourages individuals to complete the Requirements in advance of the Compliance Date to ensure that they (1) remain approved as a…