Industry groups say compliance rules at odds

New York, NY, June 7, 2011—SIFMA today announced that SIFMA and the Futures Industry Association (the “Associations”) have filed a supplemental comment letter with the Commodity Futures Trading Commission (CFTC) regarding the CFTC’s Proposed Rules on the designation of a chief compliance officer (CCO) for futures commission merchants (FCMs), swap dealers (SDs), and major swap participants (MSPs). The Associations’ additional comments supplement those provided to the CFTC in their joint letter submitted January 18, 2011.

In their letter, The Associations expressed concern that the Proposed Rules would establish a compliance framework for these registrants that is significantly at odds with that of the financial services industry more generally. The supplemental comments focused on four key points:

  • The role of compliance must remain independent from the role of business supervisors. Compliance is an independent and objective control function. As currently drafted, the Proposed Rules effectively would eliminate the separation between compliance and business supervision that enables the CCO to function effectively and independently. This would fundamentally change the role of the CCO and undermine long-standing regulatory principles.
  • “Ensuring” compliance must not be interpreted to mean “guaranteeing” compliance. The CFTC should add a provision(s) to the Proposed Rules to clarify that the CCO is not responsible for guaranteeing absolute compliance by the firm and every employee. This is an unrealistic and unattainable standard for anyone and the Associations have proposed that the CFTC define this term consistent with the widely-recognized role of compliance officers in the securities industry.
  • “Resolving” conflicts of interest must be interpreted in a reasonable manner. The CCO acting alone is not in a position to resolve conflicts of interest. The Associations do not believe Congress intended for CCOs to resolve conflicts in the executive or managerial sense, but to identify, advise, escalate as appropriate, and assist senior management in resolving conflicts. The Associations have proposed that the CFTC adopt a provision interpreting the term “resolve conflicts” to underscore this point.
  • Comments on the Annual Report and Certification. Because it is the CEO or other senior officer who is ultimately responsible for making sure the firm and its employees act in compliance with applicable law, the Associations believe the CEO, and not the CCO, should certify the annual report. Should the CFTC believe that the CCO must make this certification, however, the Associations respectfully submit that the CEO should also be required to do so. The letter provides additional comments on the annual report and certification provisions, where the Associations encourage the CFTC to harmonize its Proposed Rules with FINRA Rule 3130, revise certain elements of the annual report requirements and impose a materiality standard on report certification.

The Associations urge the CFTC to review its Proposed Rules and make the recommended changes to ensure an independent and effective compliance framework for futures commission merchants, swap dealers, and major swap participants.

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