Contributed by: Braden Perry, KennyHertz Perry, LLC
The recent CFTC Order (Release Number 8972-24) and the Dissenting Statement by Commissioner Mersinger raise significant questions about how the Commission interprets the rules regarding offline communications and recordkeeping, especially under Regulation 1.35. This is an important discussion for firms in the commodity trading realm, including all NIBA members, as it directly impacts compliance procedures and communication methods.
Commissioner Mersinger’s statement brings to light a critical issue: the challenge of aligning modern communication methods with existing recordkeeping requirements. Her dissent suggests that the CFTC’s current approach to recordkeeping may lack flexibility and a clear understanding of how communications in the commodities space differ from those in other financial markets.
Possible Rule Clarifications and Future Adjustments:
- Clarifying Offline Communication Scope: The CFTC may need to define what constitutes “unapproved communication methods” more clearly and establish guidelines tailored to the nuances of commodity trading. This could involve providing a more detailed framework for permissible communications and their associated recordkeeping requirements.
- Regulation 1.35 Reassessment: The current concerns may push the CFTC to revisit Regulation 1.35 to clarify how it applies within the commodity sector, particularly in the context of new communication technologies. Adjustments might include more explicit guidelines on what needs to be recorded and how firms can implement systems to capture and store these communications.
- Recordkeeping Flexibility: Future rulemaking could potentially introduce more flexibility in recordkeeping practices, acknowledging the evolving nature of communication methods. This would likely involve collaboration with firms to develop a more practical approach for compliance.
Impact on Audits and Inquiries: In the meantime, firms should prepare for regulatory audits by:
- Reviewing and potentially updating internal communication policies to ensure alignment with current CFTC expectations.
- Enhancing training programs to emphasize the importance of using approved communication channels.
- Strengthening supervision mechanisms to monitor for unapproved communications and ensure robust recordkeeping practices.
Gathering input from the NIBA membership could provide valuable perspectives on the practical challenges faced and inform any future requests for clarification or policy changes.
Industry advocacy could prompt the CFTC to issue more precise guidance or rule amendments that reflect the realities of commodity market communications.
