COMMODITY FUTURES TRADING COMMISSION
Guidance on Clearinghouse Recovery and Wind-Down Plans
On July 21, 2016, the CFTC announced the publication of guidance to clearinghouses on recovery plans and wind-down plans, CFTC Letter No. 16-61 (“Letter 16-61”). The subject of Letter 16-61 is recovery plans and wind-down plans maintained by derivatives clearing organizations (“DCOs”) and tools for the recovery and orderly wind-down of DCOs. Pursuant to CFTC Regulation 39.39(b), DCOs are required to adopt and maintain recovery and wind-down plans. The purpose of the plans are to detail how the DCO intends to maintain a viable plan for: the recovery or orderly wind-down necessitated by uncovered credit losses or liquidity shortfalls; and for recovery or orderly wind-down necessitated by general business, operational or other risks that are a continued threat to the company. As stated by the CFTC in Press Release PR7409-16, the development of the recovery plan (“Recovery Plan”) and/or wind-down plan (“Wind-down Plan”) is a requirement for DCOs and is a critical element of risk management and contingency planning to address extreme situations that could negatively impact the viability and financial strength of DCOs. Further, the guidance published by the CFTC explains that the rule change is to focus on prevention and provides the following: examples of market scenarios that could result in losses; recovery tools for each scenario; wind-down and resolutions for the scenarios; other considerations for developing plans; and questions DCOs should consider when developing Recovery Plans and Wind-down Plans.
Chief Compliance Officer Reporting Line Requirements
The CFTC announced that it issued a staff advisory clarifying chief compliance officer (“CCO”) reporting line requirements, CFTC Staff Advisory No. 16-62. The staff advisory was published on July 25, 2016. The CCO reporting line requirements are for swap dealers, major swap participants and futures commission merchants under CFTC Regulation 3.3. Specifically, the purpose of the advisory is to clarify the obligatory elements of Regulation 3.3 regarding CCO reporting requirements and to address additional supervisory relationships that the CCO may have with senior management, other than the board of directors or senior officers.
FINANCIAL CRIMES ENFORCEMENT NETWORK
Guidance Regarding Customer Due Diligence Requirements
On July 19, 2016, the Financial Crimes Enforcement Network (“FinCEN”) published guidance to assist covered financial institutions in understanding the scope of the final customer due diligence rules which became effective July 11, 2016 (“CDD Rule”). The guidance was issued in the form of frequently asked questions (“FAQs”) regarding the CDD Rule. The purpose of the FAQs are to provide interpretive guidance with respect to the CDD Rule. Details regarding the CDD Rule were included in the May Housekeeping, Reminders and Updates Article.
****
For further information about any of the topics covered, please feel free to contact the Ruddy Gregory, PLLC (www.ruddylaw.com) or 202-797-0762.
