Swap Dealers and Major Swap Participants Regulation - Required Compliance Policies - Comment Letters

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Dodd-Frank Timeline, Required Compliance Policies
Final Rule Issue Effective Date Compliance Date, Non-Covered Firms Compliance Date, Covered Firms
April 3, 2012 June 4, 2012 September 30, 2012 March 31, 2013

Comment letters addressing the requires compliance policies and the designation of a chief compliance officer for swap dealers major swap participants, and futures commission merchants.

Cargill - January 14, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
January 14, 2011

From the comment letter: "The proposed rules do not adequately carry out Congressional intent to permit a business with a swap dealing division to be subject to swap dealer regulation only for the activities of that division. Specifically, the proposed rules do not clearly provide that the CCO to be designated for a division within a larger company would report to the senior officer or governing body of that division and not to the senior officer or governing body of the larger company."

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NewEdge - January 7, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
January 7, 2011

Summary of key points from the comment letter:

  • CCO requirements for FCMs should be different than those prescribed for SD-MSPs, and should be administered by the NFA.
  • The proposed rule places an "unreasonably heavy burden on the CCO".
  • Compliance responsibilities "should be allocated more evenly" among senior officers.
  • Disharmony among regulators would create "onerous and confusing" difficulties for joint broker-dealers/FCMs.
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FIA/SIFMA - January 18, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

Summary of key points from the comment letter:

  • The proposed rules should not ignore well-established compliance practices.
  • The proposed rules should not make the CCO a supervisor and should not fundamentally change the role of CCO.
  • Clarifications on CCO duties and conflict resolution procedures should be clarified.
  • The CEO, not the CCO, should certify annual compliance reports.
  • CCO reporting and supervision should be more flexible.
  • The CCO requirements for FCMs, SDs and MSPs can be harmonized in a single regime based on the existing Financial Services model.
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Rosenthal Collins Group - January 18, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

From the comment letter:

  • "To require the CCO of an FCM to also be a principal—and possibly liable outside his/her area(s) of competence or control adds no incentive for qualified individuals to become or stay as CCOs of FCMs."
  • "The Commission rule on CCOs of FCMs, in our view, should be in the nature of a “broad brush” and not get involved in detail. The Proposal, in our view, would place an unduly heavy burden on the CCO of an FCM. Words like “full responsibility” to “develop and enforce” rules and procedures at an FCM could have a chilling effect on anyone qualified from taking on the CCO role."
  • "We believe that by making the CCO of an FCM “liable” for infractions by the firm and, by the proposed CCO’s annual detailed certification, giving potential “disgruntled” customers a “roadmap” for frivolous lawsuits, the Proposal does a disservice not only to FCMS, but also to the public interest."
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National Society of Compliance Professionals - January 18, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

From the comment letter:

  • "The use of the words “ensure compliance” imposes a level of responsibility on the CCOs which cannot be discharged and is inconsistent with their roles within a registrant."
  • "If every compliance issue, no matter how trivial, must be recorded and reported to the CFTC, when the annual report is filed, there may be a chilling effect on open and continuous communication with the CCO about minor compliance issues."
  • "NSCP believes that CCOs generally should report to senior management of a firm and should have their compensation set by managers who are not so tied to a particular business unit that they are influenced in setting CCO compensation by the business demands and profit considerations of business units."
  • "NSCP would support a provision, similar to ones imposed by the SEC on improper influence of chief compliance officers to investment companies and independent public accountants that would expressly make it illegal to improperly coerce a CCO."
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National Futures Association - January 18, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

"NFA believes that a CCO should be required to file an annual report that describes an FCM's, SD's, and MSP's:

  • Processes to establish, maintain, and review policies and procedures reasonably designed to achieve compliance with the Commodity Exchange Act, Commission Regulations, and futures industry self regulatory organization requirements;
  • Review of each applicable requirement under the Act and Commission regulations, and with respect to each (1) identifies the policies and procedures that are designed to achieve compliance with the requirement under the Act and Commission Regulations; (2) provides an assessment as to the effectiveness of these policies and procedures; and (3) discusses areas for improvement, and recommends potential or prospective changes or improvements to its compliance program and resources devoted to compliance;
  • Material changes, if any, to compliance policies during the report's coverage period;
  • Financial, managerial, operational, and staffing resources set aside for compliance with respect to the Act and Commission regulations, including any deficiencies in resources;
  • Material non-compliance issues identified and any corresponding action taken; and
  • The roles and responsibilities of its board of directors or senior officers, relevant board committees, and staff in addressing any conflicts of interest."
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Managed Funds Association - January 18, 2011[edit]

Required Compliance Policies; Designation of Chief Compliance Officer
Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
January 18, 2011

"MFA urges the Commission to adopt rules and guidance that effectively clarify the rights and obligations of market participants. We believe that greater guidance will clarify the lines between permissible and impermissible conduct and allow market participants to develop proper internal controls. To that end, we recommend that with respect to the Proposed Conflicts Rules, the Commission establish a clear separation between the research and trading departments, so that the criteria for clearing membership are objective and risk-based."

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Securities Industry and Financial Markets Association - January 18, 2011[edit]

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

Written on behalf of the Asset Management Group (AMG) of SIFMA, this comment letter argues that "the CFTC and SEC should consider different sets of regulations for swap dealers and MSPs, with MSP regulation focused primarily on default risk and swap dealer regulation focused on market-making, pricing and sales practices, as well as default risk." The letter also requests that the "CFTC formally extend the comment periods for the MSP Proposals and not take any action to finalize them until sufficient time has passed after finalization of the Definitions Proposals for the appropriate analyses to be undertaken and completed."

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Federal Home Loan Banks - January 18, 2011[edit]

Conflicts of Interest for Swap Dealers, Major Swap Participants, Futures Commission Merchants, and Introducing Brokers
Required Compliance Policies; Designation of Chief Compliance Officer
January 18, 2011

The FHLBanks argue that while the internal business conduct proposed rules "constitute prudent business practices and may reduce systemic risk when applied to entities that are not currently regulated, we think that they are highly duplicative and, accordingly, unreasonable for entities that are already subject to extensive prudential regulation." More specifically, the FHLBanks state:

  • Internal business conduct standards should not apply to limited swap dealers that are subject to regulation by a prudential regulator
  • Internal business conduct standards should only apply to the swap dealing activities of limited swap dealers
  • In no event should internal business conduct standards imposed on limited swap dealers duplicate regulations already imposed by prudential regulators for such entities
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References[edit]

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