43510 Federal Register / Vol. 83, No. 166 / Monday, August 27, 2018 / Rules and Regulations 

1See Dodd-Frank Act, Public Law 111–203, 124 

Stat. 1376 (2010). 

2 7 U.S.C. 6d(d) and 6s(k)(1). 

3 7 U.S.C. 6s(k)(2) and (3). 

4 7 U.S.C. 6d(d). 

5See Designation of a Chief Compliance Officer; 

Required Compliance Policies; and Annual Report 

of a Futures Commission Merchant, Swap Dealer, 

or Major Swap Participant, 75 FR 70881 (proposed 

Nov. 19, 2010). 

6 17 CFR 3.3(d)–(f). See Swap Dealer and Major 

Swap Participant Recordkeeping, Reporting, and 

Duties Rules, 77 FR 20128 (Apr. 3, 2012). 

7 17 CFR 3.3 (2017). Commission regulations are 

found at 17 CFR chapter I, and may be accessed 

through the Commission’s website, www.cftc.gov. 

8Chief Compliance Officer Duties and Annual 

Report Requirements for Futures Commission 

Merchants, Swap Dealers, and Major Swap 

Participants; Amendments, 82 FR 21330 (proposed 

May 8, 2017). 

9See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, 81 FR 29960 (May 13, 2016) 

(‘‘SEC Adopting Release’’). 

10As noted in the Proposal, the change to 

referencing the Registrant’s business as an SD or 

MSP is not intended to affect the scope of the duties 

of the CCO. 82 FR at 21332 (Citing the CCO Rules 

Adopting Release, 77 FR 20158 (‘‘[T]he Commission 

is clarifying in the final rules that the CCO’s duties 

extend only to the activities of the registrant that 

are regulated by the Commission, namely swaps 

activities of SDs and MSPs and the derivatives 

activities included in the definition of FCM under 

section 1(a)(28) of the CEA.’’)). 

11 15 U.S.C. 78o–10(k). 

12Public Law 111–203, 124 Stat. 1376, 1641–1642 

(codified at 15 U.S.C. 8302(a)(1)–(2)). 

COMMODITY FUTURES TRADING 

COMMISSION 

17 CFR Part 3 

RIN 3038–AE56 

Chief Compliance Officer Duties and 

Annual Report Requirements for 

Futures Commission Merchants, Swap 

Dealers, and Major Swap Participants 

AGENCY: Commodity Futures Trading 

Commission. 

ACTION: Final rule. 

SUMMARY: The Commodity Futures 

Trading Commission (‘‘Commission’’ or 

‘‘CFTC’’) is amending its regulations 

regarding certain duties of chief 

compliance officers (‘‘CCOs’’) of swap 

dealers (‘‘SDs’’), major swap 

participants (‘‘MSPs’’), and futures 

commission merchants (‘‘FCMs’’) 

(collectively, ‘‘Registrants’’); and certain 

requirements for preparing, certifying, 

and furnishing to the Commission an 

annual report containing an assessment 

of the Registrant’s compliance activities. 

DATES: This rule is effective September 

26, 2018. 

FOR FURTHER INFORMATION CONTACT: 

Matthew Kulkin, Director, 202–418– 

5213, mkulkin@cftc.gov; Erik Remmler, 

Deputy Director, 202–418–7630, 

eremmler@cftc.gov; Pamela M. 

Geraghty, Special Counsel, 202–418– 

5634, pgeraghty@cftc.gov; or Fern B. 

Simmons, Special Counsel, 202–418– 

5901, fsimmons@cftc.gov, Division of 

Swap Dealer and Intermediary 

Oversight, Commodity Futures Trading 

Commission, Three Lafayette Centre, 

1155 21st Street NW, Washington, DC 

20581. 

SUPPLEMENTARY INFORMATION: 

I. Background 

A. Statutory and Regulatory Background 

As amended by the Dodd-Frank Wall 

Street Reform and Consumer Protection 

Act (‘‘Dodd-Frank Act’’),1 sections 4d(d) 

and 4s(k) of the Commodity Exchange 

Act (‘‘CEA’’ or ‘‘Act’’) require each 

Registrant to designate an individual to 

serve as its CCO.2 Sections 4s(k)(2) and 

(3) set forth certain requirements and 

duties for CCOs of SDs and MSPs, 

including the requirement to prepare 

and sign an annual compliance report 

(‘‘CCO Annual Report’’).3 CEA section 

4d(d) requires CCOs of FCMs to 

‘‘perform such duties and 

responsibilities’’ as are established by 

Commission regulation or the rules of a 

registered futures association.4 On 

November 19, 2010, the Commission 

proposed regulations implementing the 

CCO requirements,5 and in April 2012, 

the Commission adopted the final CCO 

regulations (‘‘CCO Rules Adopting 

Release’’).6 For purposes of this release, 

§ 3.3 7 and the related definitions in 

§ 3.1 of the Commission’s regulations 

are herein referred to as the ‘‘CCO 

Rules.’’ 

B. The Proposal 

On May 8, 2017, the Commission 

published for public comment a Notice 

of Proposed Rulemaking (‘‘Proposal’’) 8

to amend the CCO Rules. In particular, 

the Proposal addressed certain CCO 

duties and requirements for preparing 

and furnishing the CCO Annual Report. 

The Proposal sought to incorporate 

knowledge gained through Commission 

staff’s experience in administering the 

implementation of § 3.3 and to more 

closely harmonize certain provisions 

with corresponding Securities and 

Exchange Commission (‘‘SEC’’) rules for 

CCOs of security-based swap dealers 

and major security-based swap 

participants (collectively, ‘‘SEC 

Registrants’’).9

To provide greater clarity regarding 

the CCO reporting line required by 

section 4s(k)(2)(A) of the Act and 

§ 3.3(a)(1), the Commission proposed to 

define ‘‘senior officer’’ in § 3.1 as ‘‘the 

chief executive officer or other 

equivalent officer of a registrant.’’ With 

regard to CCO duties, the Proposal 

would include additional language in 

§ 3.3(d)(1) to clarify that the CCO’s duty 

with respect to administering policies 

and procedures would be specific to the 

Registrant’s business as an SD, MSP, or 

FCM, as applicable.10 The Proposal 

would also modify the language in 

§ 3.3(d)(2) to clarify that the CCO must 

take ‘‘reasonable steps’’ to resolve 

conflicts of interest, and to require in 

§ 3.3(d)(3) that a CCO take reasonable 

steps to ensure compliance with the Act 

and Commission regulations by, among 

other things, ‘‘ensuring the registrant 

establishes, maintains, and reviews 

written policies and procedures 

reasonably designed to achieve 

compliance.’’ The Commission further 

proposed to amend § 3.3(d)(4) and (5) to 

remove the requirement in each 

provision that the CCO consult with the 

board of directors or senior officer in 

connection with establishing procedures 

for addressing noncompliance issues. 

The Proposal also would clarify that 

policies and procedures are to be 

‘‘reasonably designed’’ to achieve their 

stated purpose, and would amend 

§ 3.3(d)(4) to include remediating 

matters identified ‘‘through any means.’’ 

Regarding the CCO Annual Report 

requirements, the Proposal would 

clarify § 3.3(e) by eliminating the 

requirement that a Registrant address 

‘‘each’’ applicable CFTC regulatory 

requirement to which it is subject when 

assessing its written policies and 

procedures (‘‘WPPs’’). Additionally, the 

Commission proposed to clarify that the 

CCO Annual Report’s discussion of 

compliance resources be limited to a 

discussion of resources for the specific 

activities for which the Registrant is 

registered. Finally, the Proposal would 

amend § 3.3(f)(1) to add the Registrant’s 

audit committee (or equivalent body) as 

a required recipient of the CCO Annual 

Report in addition to the board of 

directors and the senior officer. 

C. Harmonization With SEC Regulations 

Using language identical to CEA 

section 4s(k), the Dodd-Frank Act 

amended the Securities Exchange Act of 

1934 by adding section 15F(k) to 

establish CCO requirements for SEC 

Registrants.11 In compliance with 

sections 712(a)(1)–(2) of the Dodd-Frank 

Act, the Commission and SEC staffs 

consulted and coordinated together, and 

with prudential regulators, in 

developing the respective CCO rules for 

purposes of regulatory consistency.12

The SEC initially proposed rule 15Fk– 

1 to implement CCO requirements and 

duties for SEC Registrants in July 


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13See Business Conduct Standards for SecurityBased Swap Dealers and Major Security-Based 

Swap Participants, 76 FR 42396 (proposed Jul. 18, 

2011). 

14See Reopening of Comment Periods for Certain 

Rulemaking Releases and Policy Statement 

Applicable to Security-Based Swaps, 78 FR 30800 

(May 23, 2013). 

15 17 CFR 240.15Fk–1. See SEC Adopting Release, 

81 FR 29960. 

16For example, the provisions of the Dodd-Frank 

Act that provide for establishing regulations for 

swap dealers by the CFTC are nearly identical to 

most of the provisions of the Dodd-Frank Act that 

provide for establishing regulations for securitybased swap dealers by the SEC. See Dodd-Frank 

Act, Public Law 111–203, 124 Stat. 1376, 1711– 

1712, 1793 (2010) (codified at 7 U.S.C. 6s and 15 

U.S.C. 78o–10). 

17Comment letters were submitted by the 

following entities: Allen & Overy LLP; Automated 

Compliance Management, LLC (‘‘ACM’’); Better 

Markets; Chris Barnard; Futures Industry 

Association and Securities Industry and Financial 

Markets Association (‘‘FIA/SIFMA’’); International 

Swaps and Derivatives Association (ISDA); 

Japanese Bankers Association (‘‘JBA’’); National 

Futures Association (‘‘NFA’’); the Natural Gas 

Supply Association (‘‘NGSA’’); Paws Nutritional 

Org.; and TD Ameritrade Futures and Forex LLC 

(‘‘TD Ameritrade’’). All comment letters are 

available on the Commission’s website at http://

comments.cftc.gov/PublicComments/CommentList.

aspx?id=1811. 

18See NGSA comment letter. 

19See Better Markets comment letter. 

20See Allen & Overy and JBA comment letters. 21See, e.g., FIA/SIFMA and ISDA comment 

letters. 22See, e.g., Better Markets, FIA/SIFMA, ISDA, 

NFA, and TD Ameritrade comment letters. 23See FIA/SIFMA, ISDA, and NFA comment 

letters. 24See Chris Barnard, Better Markets, ISDA, and 

FIA/SIFMA comment letters. 25See FIA/SIFMA comment letter. Similarly, 

while TD Ameritrade did not comment directly on 

the proposed definition, it requested that the 

Commission consider including a variety of senior 

roles at a Registrant for inclusion in the definition 

of ‘‘other equivalent officer’’ for purposes of 

allowing the CCO to report to someone other than 

the CEO. 

2011.13 In May 2013, after the CFTC 

adopted the CCO Rules, the SEC reopened the comment period for its 

outstanding Dodd-Frank Act Title VII 

rulemakings, including rule 15Fk–1.14

SEC staff continued to consult with 

CFTC staff leading up to the adoption of 

rule 15Fk–1 in May 2016.15

While the CFTC regulates derivatives 

markets and the SEC regulates securities 

markets, many of the participants in 

these markets are the same. Similar 

activities in these markets are often 

regulated by each agency in similar 

ways under similar statutory 

mandates.16 In this regard, the CFTC 

and SEC have taken steps through 

ongoing communication and 

coordination to harmonize similar 

regulations, including the regulations 

addressed in this release. 

Several of the proposed amendments 

would further harmonize CFTC and SEC 

regulations. More specifically, the 

following provisions in the Proposal 

align the CFTC CCO regulations with 

the corresponding SEC CCO regulations: 

• Including a definition of ‘‘senior 

officer’’ in § 3.1 that is identical to the 

SEC’s definition; 

• Including additional language in 

§ 3.3(d)(1) to clarify that the CCO’s duty 

with respect to administering policies 

and procedures would be specific to the 

Registrant’s business as an SD, MSP, or 

FCM, as applicable; 

• Modifying the language in 

§ 3.3(d)(2) to require reasonable steps be 

taken to resolve conflicts of interest; 

• Requiring the CCO to identify 

noncompliance issues ‘‘through any 

means’’; 

• Removing the additional 

requirement in § 3.3(d)(4) and (5) that 

the CCO consult with the board of 

directors or senior officer in connection 

with establishing procedures for 

addressing noncompliance issues; and 

• Replacing the requirement in 

§ 3.3(e) that a Registrant address ‘‘each’’ 

applicable CFTC regulatory requirement 

to which it is subject when assessing its 

WPPs with a requirement to address the 

applicable regulations generally. 

Furthermore, in the Proposal, the 

Commission solicited comments 

regarding potential additional rule 

changes that would further harmonize 

the CFTC and SEC regulations. After 

careful review of the comments 

received, the final rule includes the 

following additional harmonizing 

amendments: 

• In § 3.3(d)(2), the CCO must take 

reasonable steps to resolve any 

‘‘material’’ conflicts of interest; 

• In § 3.3(d)(4), the CCO must ‘‘take 

reasonable steps to ensure the 

registrant’’ establishes, maintains, and 

reviews written policies and procedures 

for the remediation of noncompliance 

issues; 

• In § 3.3(d)(5), the CCO must ‘‘take 

reasonable steps to ensure the 

registrant’’ establishes written 

procedures for the handling of 

noncompliance issues; and 

• In § 3.3(f)(3), the CCO Annual 

Report certification includes language 

from the certifying individual that the 

CCO Annual Report is accurate and 

complete ‘‘in all material respects.’’ 

II. Summary of Comments 

The Commission received eleven 

comment letters and Commission staff 

participated in one ex parte 

teleconference concerning the 

Proposal.17 The majority of commenters 

generally supported the Commission’s 

efforts to clarify the role and duties of 

the CCO, reduce burdens associated 

with preparing the CCO Annual Report, 

and further harmonize the CCO Rules 

with parallel SEC rules. One commenter 

expressed general support for the 

proposed modifications and recognition 

of the Commission’s efforts as a 

meaningful step towards increasing 

regulatory certainty.18 Another 

commenter expressed concern that a 

number of the proposals weaken the 

CCO regulatory regime (by, among other 

things, reducing CCO accountability).19

Two comments exclusively sought 

clarity on the Proposal’s impact on the 

continued ability of non-U.S. SDs to 

benefit from the Commission’s 

substituted compliance determinations 

that pertain to § 3.3.20 Some 

commenters cautioned against complete 

harmonization with the SEC regarding 

the requirement to furnish the CCO 

Annual Report, but requested more 

complete alignment in other areas 

addressing the role and duties of the 

CCO.21 As outlined below, several 

commenters suggested modifications to 

the rule text and requested further 

interpretive guidance regarding the role 

and duties of the CCO and CCO Annual 

Report content.22 Additionally, several 

commenters suggested modifications to 

the rule text to add a materiality 

qualifier to the CCO Annual Report 

certification.23 For the reasons provided 

below, the Commission accepted some 

of these recommendations in the 

amendments, as adopted, and 

accompanying guidance, and declined 

to accept certain other 

recommendations. 

III. Final Rule 

A. Regulation 3.1—Definitions 

1. Regulation 3.1(j)—‘‘Senior Officer’’ 

The Commission proposed to define 

‘‘senior officer’’ in § 3.1 as ‘‘the chief 

executive officer or other equivalent 

officer of a registrant.’’ The Commission 

received four comments addressing the 

proposed definition.24 Chris Barnard 

and Better Markets supported the 

proposed definition. FIA/SIFMA 

requested that the Commission address 

the variety of organizational structures 

present among Registrants and define 

‘‘senior officer’’ to include ‘‘a more 

senior officer within the Registrant’s 

group-wide compliance, risk, legal or 

other control function who in turn 

reports to the holding company’s board 

of directors or CEO (or equivalent 

officer).’’ 25 FIA/SIFMA further 

requested that the Commission expand 

its interpretation of the phrase ‘‘other 

equivalent officer’’ to include the most 

senior officer of a Registrant with 

supervisory responsibility for all of the 


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26 7 U.S.C. 6s(k)(2)(A) (emphasis added). 

27See CCO Rules Adopting Release, 77 FR at 

20188. This concept was incorporated in § 3.3 and 

therefore applies to FCMs equally. 

28Proposal, 82 FR at 21331. For example, some 

firms do not have a chief executive officer, but 

instead give the highest level executive the title of 

‘‘president,’’ ‘‘member,’’ or ‘‘general partner.’’ 

29 Id. See also CCO Rules Adopting Release, 77 

FR at 20188. 

30See CFTC Staff Advisory No. 16–62 (Jul. 25, 

2016), available at https://www.cftc.gov/idc/groups/ 

public/%40lrlettergeneral/documents/letter/16- 

62.pdf. 

31NFA also endorsed the proposed amendment to 

§ 3.3(d)(1). See NFA comment letter. 32See SEC Adopting Release, 81 FR at 30057. 

33See CCO Rules Adopting Release, 77 FR at 

20162. (‘‘In response to comments advocating a 

purely advisory role for the CCO, the Commission 

observes that the role of the CCO required under the 

CEA, as amended by the Dodd-Frank Act, goes 

beyond what has been represented by commenters 

as the customary and traditional role of a 

compliance officer.’’) 

34See 75 FR 70881, 70883 (proposed Nov. 19, 

2010). The CCO’s duty to administer policies and 

procedures does not ‘‘otherwise contradict wellestablished tenets of law regarding the allocation of 

responsibility within a business association.’’ 

Registrant’s business as an FCM, SD, or 

MSP. ISDA expressed support for the 

Commission’s proposed definition, but 

requested the Commission provide 

Registrants the ability to determine 

individually who would qualify as an 

‘‘equivalent officer.’’ 

Upon consideration of the comments, 

the Commission is adopting the 

definition as proposed. This definition 

of ‘‘senior officer’’ clarifies the 

Commission’s long-standing 

interpretation that compliance with the 

statutory requirement to have the CCO 

‘‘report directly to the board or to the 

senior officer’’ 26 requires a CCO to have 

a direct reporting line to the board of 

directors or the highest executive officer 

in the legal entity that is the 

Registrant.27

As stated in the Proposal, the ‘‘chief 

executive officer’’ is typically the 

highest executive level, but the 

Commission is including in the 

definition the phrase ‘‘other equivalent 

officer’’ to address Registrants who may 

have a different title for the highest 

executive officer.28 This approach is 

also consistent with the SEC’s definition 

of ‘‘senior officer’’ in SEC rule 15Fk– 

1(e)(2), and is intended to ensure the 

CCO’s independence from influence, 

interference, or retaliation.29 The 

Commission is also declining to broaden 

its definition of ‘‘senior officer’’ or 

expand its interpretation of ‘‘other 

equivalent officer.’’ The Commission 

notes that the definition of ‘‘senior 

officer,’’ as adopted, does not preclude 

additional CCO reporting lines that 

Registrants may wish to implement for 

practical day-to-day oversight.30

In response to ISDA’s comment, the 

Commission believes that the definition 

and guidance provide sufficient 

flexibility. Registrants should be able to 

ensure that regardless of a firm’s chosen 

nomenclature, the CCO has a direct 

reporting line to the highest executivelevel individual at the Registrant. 

2. Other Definitions 

In response to the Commission’s 

request for comment regarding whether 

other definitions should be added to 

§ 3.1, FIA/SIFMA requested that the 

Commission define ‘‘material 

noncompliance issue’’ as it relates to the 

requirement in § 3.3(e)(5) to describe in 

the CCO Annual Report ‘‘any material 

noncompliance issues identified and the 

corresponding action taken.’’ The 

Commission is declining to define 

‘‘material noncompliance issue’’ at this 

time. Since the adoption of the CCO 

Rules, Registrants have defined and 

implemented their own materiality 

standards when categorizing noncompliance issues. Given the variation 

in size and nature of businesses among 

Registrants required to submit CCO 

Annual Reports, it is the Commission’s 

view that materiality is dependent upon 

many factors that impact Registrants to 

varying degrees. While some factors 

ought to be considered by all 

Registrants, e.g., whether the issue may 

involve a violation of the CEA or a 

Commission regulation, there is no ‘‘one 

size fits all’’ approach. Indeed, setting 

forth a standard of materiality could 

result in an overly prescriptive model 

for many Registrants. Based on 

experience in overseeing the 

implementation of § 3.3(e), Commission 

staff believes that Registrants have 

generally developed and applied 

adequate internal materiality standards 

for purposes of the CCO Annual Report. 

B. Regulation 3.3(d)—Chief Compliance 

Officer Duties 

1. Regulation 3.3(d)(1)—Duty To 

Administer Compliance Policies and 

Procedures 

The Commission proposed to amend 

§ 3.3(d)(1) to require that a CCO’s duties 

include administering each of the 

registrant’s policies and procedures 

relating to its business as a futures 

commission merchant, swap dealer, or 

major swap participant that are required 

to be established pursuant to the Act 

and Commission regulations. 

ISDA and FIA/SIFMA generally 

supported the Commission’s proposed 

changes 31 and recommended that the 

Commission further harmonize 

§ 3.3(d)(1) with the SEC’s CCO rules. 

Specifically, ISDA and FIA/SIFMA 

recommended that the Commission 

should clarify in guidance that the duty 

to administer policies and procedures 

means reviewing, evaluating, and 

advising the Registrant on its 

compliance policies and procedures.32

Alternatively, ISDA proposed that the 

Commission strike the term 

‘‘administering each’’ from § 3.3(d)(1), 

and replace it with ‘‘reviewing, 

evaluating, and advising the registrant 

on the development, implementation, 

and monitoring’’ of the Registrant’s 

compliance policies and procedures. 

ISDA asserted that the current proposed 

language creates an undue burden on 

CCOs who do not necessarily 

‘‘administer’’ or execute each policy 

and/or procedure relating to an 

applicable CFTC rule. Rather, ISDA 

explained, various business units and 

control functions within a firm establish 

policies and procedures for their 

respective areas, with the ultimate 

supervisory authority residing with the 

CEO or other senior officer. 

After considering the comments 

received, the Commission is adopting 

§ 3.3(d)(1) as proposed. As the 

Commission has previously stated, and 

as discussed below, the role of the CCO, 

under the Dodd-Frank Act, goes beyond 

the customary and traditional advisory 

role of a CCO and requires more active 

engagement.33 The Commission expects 

the CCO to be actively engaged in 

administering a firm’s compliance 

policies and procedures, as described 

further below. 

The language of § 3.3(d)(1), however, 

is not intended to diminish the role and 

direct involvement of other senior 

officers, supervisors and other 

employees with more direct knowledge, 

expertise, and responsibilities for 

various regulated activities within their 

business lines. Thus, while the CCO 

plays a central role in administering a 

firm’s policies and procedures, other 

personnel may implement the 

procedures on a day-to-day basis when 

undertaking related activities in the 

normal course of business. 

Furthermore, the Commission 

reiterates that the Registrant is 

ultimately responsible for the effective 

implementation of the policies and 

procedures.34 In response to ISDA and 

FIA/SIFMA’s request for clarification on 

the CCO’s duty to administer policies 

and procedures, it is the Commission’s 

view that a CCO may, in many 

circumstances, be able to fulfill his or 

her role through actively engaging in 

processes involving ‘‘reviewing, 

evaluating, and advising’’ on policies 

and procedures and compliance matters, 

while others in the organization are 


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35See Proposal, 82 FR at 21332. The addition of 

a materiality qualifier also further harmonizes 

§ 3.3(d)(2) with the SEC’s parallel CCO rule. See 17 

CFR 240.15Fk–1(b)(3). 

36See 77 FR at 21332 (‘‘If strictly interpreted, the 

current rule text creates an undue burden on CCOs, 

likely taking them away from more important 

compliance activities.’’) 

37See 7 U.S.C. 6s(k)(2)(C). 

38See CCO Rules Adopting Release, 77 FR at 

20161. 

39 Id. 

40For example, similar to the SEC’s approach, 

conflicts between the business interests of a 

Registrant and its regulatory requirements, and 

conflicts between or with associated persons of a 

Registrant are often material. See SEC Adopting 

Release, 81 FR 29960 at 30056–30057 (‘‘Such 

conflicts of interest could include conflicts between 

the commercial interests of an SBS Entity and its 

statutory and regulatory responsibilities, and 

Continued 

responsible for the daily 

implementation thereof. However, if, in 

the normal course, the CCO becomes 

aware (or reasonably should have been 

aware) of significant issues that are not 

being addressed in a reasonably 

satisfactory manner, the CCO is 

expected to take further action to 

address those issues. Importantly, for 

such circumstances, CEA section 

4s(k)(2)(A) provides the CCO with a 

reporting line directly to the board or 

the senior officer. Accordingly, it may 

be appropriate for the CCO, depending 

on the facts and circumstances, to use 

that reporting line to elevate any such 

significant issues that have not been 

otherwise addressed satisfactorily. 

Through this active engagement and, if 

appropriate, utilizing the available 

escalation measures described above, 

the CCO may be able to demonstrate 

that he or she has fulfilled the role 

assigned to him or her under the 

regulation. 

2. Regulation 3.3(d)(2)—Duty To 

Resolve Conflicts of Interest 

Proposed § 3.3(d)(2) would require the 

CCO, in consultation with the board of 

directors or the senior officer, to take 

reasonable steps to resolve any conflicts 

of interest that may arise. ISDA and 

FIA/SIFMA supported the proposed 

revisions to § 3.3(d)(2) and provided 

additional recommendations. Both 

commenters recommended that the 

CCO’s duty to resolve conflicts of 

interest should be limited to ‘‘material’’ 

conflicts of interest and should apply 

only to issues that arise in connection 

with the Registrant’s business as an 

FCM, SD, or MSP. ISDA suggested that, 

consistent with the SEC’s view, the 

Commission should explicitly state that 

the primary responsibility to resolve 

conflicts of interest falls on the 

Registrant and that the CCO’s role 

would include identifying, advising, 

and escalating, as appropriate, to senior 

officers matters involving conflicts of 

interest. ISDA further suggested that the 

Commission replace ‘‘resolve’’ with 

‘‘minimize’’ in the rule text. Similarly, 

FIA/SIFMA recommended that the 

Commission clarify that ‘‘resolution’’ 

involves either negation or mitigation of 

the conflict of interest. 

Better Markets generally did not 

support the Commission’s proposed 

changes to § 3.3(d)(2). Among other 

reasons, Better Markets is of the view 

that the proposed changes are not 

consistent with applicable statutory 

language to ‘‘resolve any conflicts’’ and 

will dilute the CCO’s duty to address 

conflicts of interest. 

Having considered these comments, 

the Commission is adopting § 3.3(d)(2) 

as proposed but with further 

modifications to provide that CCOs have 

a duty to take reasonable steps to 

resolve ‘‘material’’ conflicts of interest 

‘‘relating to the registrant’s business as 

a futures commission merchant, swap 

dealer, or major swap participant.’’ The 

additional language refines the 

Commission’s view that CCOs cannot 

reasonably be expected to personally 

resolve every potential conflict of 

interest that may arise, and the 

Commission affirms that ‘‘routinely 

encountered conflicts could be resolved 

in the normal course of business . . .’’ 

consistent with the CCO’s general 

administration of internal policies and 

procedures, which must include 

conflicts of interest policies.35 Requiring 

the CCO to resolve every conflict of 

interest, including non-material 

conflicts, in consultation with the board 

of directors or the senior officer would 

potentially take too much of the CCO’s 

and senior management’s time away 

from other necessary activities when 

non-material conflicts can usually be 

resolved effectively by other staff in the 

normal course of business. The 

Commission believes that this is 

consistent with the underlying objective 

of this provision, which imposes a duty 

on CCOs to resolve matters under the 

Act and Commission regulations within 

the practical limits of their position at 

the Registrant. The Commission believes 

that the additional language does not 

dilute the CCO’s duty to address 

conflicts of interest, and that the rule as 

amended fulfills the purposes of CEA 

section 4s(k).36 Rather than spreading 

time and resources over many conflict 

issues—both material and nonmaterial—the changes will allow the 

CCO to focus his or her time and 

resources on the material conflict issues, 

and more broadly, the other important 

compliance duties required by 

regulation. The Commission is also of 

the view that amending § 3.3(d)(2) to 

limit the scope of the CCO’s 

responsibility to conflicts relating to the 

Registrant’s business as an FCM, SD, or 

MSP clarifies that CCOs have a duty to 

resolve matters under the Act and 

Commission regulations, rather than any 

conflict that ‘‘may arise.’’ 

The Commission declines to 

implement comments suggesting that 

CCOs have a duty to simply minimize, 

rather than ‘‘resolve’’ conflicts of 

interest. CEA section 4s(k)(2)(C) 

explicitly requires conflict resolution.37

While resolution can include the 

mitigation of conflicts to the point 

where they are no longer material, 

resolution also encompasses the 

elimination of conflicts if reasonably 

practicable.38

In response to ISDA’s request that the 

Commission state that a CCO’s role in 

resolving conflicts would involve 

identifying, advising on, and escalating 

to management conflicts of interest, the 

Commission is declining to incorporate 

that language into the regulatory text. 

However, the Commission believes that 

such an approach provides a reasonable 

framework for CCOs to use in fulfilling 

their duty to take reasonable steps to 

resolve material conflicts of interest. As 

the Commission has previously 

acknowledged, active engagement ‘‘may 

involve actions other than making the 

final decision.’’ 39

Should CCOs choose to incorporate 

the ‘‘identify, advise and escalate’’ 

framework into their conflict resolution 

procedures, however, a passive 

implementation of that framework 

should not be viewed as fulfilling the 

CCO’s duties for conflict resolution. The 

requirement to ‘‘take reasonable steps’’ 

requires an active role in the conflict 

resolution process, including, for 

example: (1) Direct involvement of the 

CCO in developing and implementing 

active processes for conflict 

identification, evaluation, and 

resolution; (2) advising on the 

effectiveness of alternatives to mitigate 

or eliminate conflicts; and (3) escalating 

conflict issues if the conflicts are not 

otherwise resolved or mitigated as 

required by § 3.3(d)(2), including 

through the CCO’s direct reporting line 

to the board of directors or the senior 

officer if necessary or appropriate. 

The Commission believes that the 

determination of what is a ‘‘material’’ 

conflict for a particular Registrant 

should be assessed based on the facts 

and circumstances relevant to that 

Registrant and the conflict. Although 

the Commission notes that there are 

some conflicts that are typically treated 

as material,40 the Commission declines 


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conflicts between, among, or with associated 

persons of the SBS Entity.’’). 

41The Proposal would change the words ‘‘. . . 

relating to the swap dealer’s or major swap 

participant’s activities, or to the future commission 

merchant’s business as a futures commission 

merchant’’ to ‘‘. . . relating to the registrant’s 

business as a futures commission merchant, swap 

dealer or major swap participant.’’ 

42See FIA/SIFMA and ISDA comment letters 

(emphasis added). See also 17 CFR 240.15Fk– 

1(b)(2). 

43Better Markets comment letter. 

44The proposed non-substantive change that 

simplifies the wording of § 3.3(d)(3) is being 

adopted for the reasons stated in the Proposal. 

45See 7 U.S.C. 6s(k)(2)(E) (requiring the CCO to 

ensure compliance with the Act (including 

regulations) relating to swaps, including each rule 

prescribed by the Commission under that section). 

46See CCO Rules Adopting Release, 77 FR at 

20162. 

47See supra at note 33. 

48For example, escalation could be to the board 

or the senior officer to whom the CCO reports either 

through the CCO Annual Report, annual or more 

frequent meetings, or other mechanisms. 

49See 75 FR at 70883 (‘‘The chief compliance 

officer can only ensure the registrant’s compliance 

to the full capacity of an individual person . . .’’). 

50See CCO Rules Adopting Release, 77 FR at 

20162 (‘‘[T]he Commission does not believe . . . 

that the CCO’s duties under the CEA or § 3.3 

requires that the CCO be granted ultimate 

supervisory authority by a registrant.’’). 

51For example, in working with other personnel 

at the Registrant, it would be reasonable to expect 

at this time to define materiality in this 

context to avoid creating an 

unintentionally prescriptive model. The 

Commission expects each Registrant to 

develop its own appropriate standard or 

procedure for determining if a conflict 

is ‘‘material’’ for purposes of the rule. 

3. Regulation 3.3(d)(3)—Duty To Ensure 

Compliance 

The Proposal would make a wording 

change to § 3.3(d)(3) to simplify the 

text 41 and to add that a CCO’s duty in 

§ 3.3(d)(3) to ensure compliance with 

the Act and the Commission’s 

regulations includes ‘‘ensuring the 

registrant establishes, maintains, and 

reviews WPPs reasonably designed to 

achieve compliance.’’ 

ISDA and FIA/SIFMA recommended 

that the Commission further harmonize 

paragraph (d)(3) with the SEC’s 

corresponding rule by removing the 

existing general duty for the CCO to take 

reasonable steps to ensure compliance 

and only require the CCO to ensure that 

the Registrant establishes, maintains, 

and reviews policies and procedures as 

the CCO’s duty.42 ISDA and FIA/SIFMA 

also asserted that the change would 

address uncertainty regarding the 

breadth of a CCO’s supervisory 

authority and concerns that ensuring 

compliance is an impracticable 

requirement for CCOs. 

TD Ameritrade commented that the 

Commission should align paragraph 

(d)(3) with FINRA Rule 3130 by 

clarifying that the CCO is required to 

‘‘have processes in place’’ for the 

Registrant to establish, maintain, and 

review WPPs reasonably designed to 

achieve compliance. TD Ameritrade 

contended that the proposed language 

in paragraph (d)(3), which requires 

CCOs to ensure compliance, rather than 

simply have processes in place, is 

cumbersome and perhaps places a 

higher burden on CCOs than intended 

by the Commission. 

Better Markets commented that the 

proposed amendment to paragraph 

(d)(3) could be viewed as defining the 

full scope of the CCO’s duty to ensure 

compliance, rather than merely 

clarifying the extent of the duty. Better 

Markets noted that the duty to ensure 

compliance is broad and cannot be 

equated with a CCO’s obligation to 

administer policies and procedures. To 

eliminate uncertainty, Better Markets 

recommended further clarifying that the 

additional language is ‘‘without 

limitation.’’ 43

Having considered the totality of the 

responses received, the Commission 

believes that the proposed amendment 

to § 3.3(d)(3) adding that the duty 

includes ‘‘ensuring the registrant 

establishes, maintains, and reviews 

WPPs reasonably designed to achieve 

compliance’’ creates ambiguity, rather 

than clarity, with respect to the scope of 

a CCO’s duty to ensure compliance. 

Therefore, the Commission is declining 

to adopt that proposed amendment to 

§ 3.3(d)(3).44 A CCO’s duty in § 3.3(d)(3) 

to ensure compliance with the Act and 

Commission regulations therefore 

remains the same as adopted in the CCO 

Rules Adopting Release. 

Current § 3.3(d)(3) implements CEA 

section 4s(k)(2)(E). CEA section 

4s(k)(2)(E) requires that the CCO shall 

ensure compliance with the Act 

(including regulations) relating to 

swaps, including each rule prescribed 

by the Commission under that section. 

Thus, the Commission believes 

§ 3.3(d)(3) requires more than, as 

suggested by some commenters, simply 

taking reasonable steps to ensure the 

Registrant establishes, maintains, and 

reviews written compliance policies and 

procedures.45 The Commission, 

however, acknowledges commenters’ 

concerns regarding the uncertainty as to 

the breadth of a CCO’s responsibility 

and the practicality of broad 

expectations for the CCO in this regard 

given the wide variety of swap dealing 

and other activities undertaken by 

different Registrants. When finalizing 

§ 3.3(d)(3), the Commission recognized 

that requiring a CCO to ‘‘ensure 

compliance’’ could be an impracticable 

standard and limited the CCO’s duty to 

‘‘taking reasonable steps to ensure 

compliance.’’ 46 At the time, however, 

the Commission did not provide 

guidance on what ‘‘taking reasonable 

steps to ensure compliance’’ means. 

Accordingly, the Commission is taking 

this opportunity, with the benefit of 

several years of experience 

implementing the CCO Rules, to provide 

further guidance as to the breadth of the 

CCO obligations under § 3.3(d)(3) and 

the practical expectations for fulfilling 

those obligations. 

As stated by the Commission 

previously, the CCO’s duty to take 

reasonable steps to ensure compliance 

includes active engagement in the dayto-day implementation of compliance 

policies and procedures.47 This 

engagement would likely include a 

reasonable level of involvement in 

compliance monitoring, identifying 

non-compliance or potential noncompliance events, advising on the 

mitigation and correction of compliance 

activities, and, where necessary, 

escalating significant matters that 

require senior management attention.48

Whether the CCO’s activities constitute 

‘‘reasonable steps’’ depends on the facts 

and circumstances of the Registrant’s 

related business activities, such as the 

size of the business, the diversity and 

complexity of the swaps or FCM 

activities, and the overlap with other 

compliance activities in the firm (e.g., 

where swap dealing activities may be 

contained within business lines that are 

subject to additional regulation outside 

the CEA). 

In taking reasonable steps to ensure 

compliance, the Commission believes 

that a CCO cannot reasonably be 

expected to have sole and complete 

responsibility for ensuring compliance 

with the Act and the relevant 

regulations.49 As such, § 3.3(d)(3) does 

not require the CCO to guarantee 

compliance or be granted final 

supervisory authority.50 The regulation 

does not diminish the role and direct 

involvement of other senior officers, 

supervisors, and employees with more 

direct knowledge, expertise, and 

responsibilities for the regulated 

business activities to effect compliance. 

As such, the Commission is of the view 

that a CCO may reasonably rely on these 

personnel to implement many of the 

policies and procedures needed to 

ensure compliance as part of their 

regular business activities (in this 

regard, such personnel are sometimes 

referred to as the ‘‘first line’’ of 

compliance).51 The Commission also 


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that a CCO would participate in (though not 

necessarily have sole or principal responsibility for 

implementing) the development and 

implementation of compliance training, monitoring 

and spot checking of first line compliance activities, 

the identification of possible compliance 

weaknesses, and the escalation to supervisors and 

senior management of the remediation or mitigation 

of weaknesses identified, as appropriate. 52 ISDA comment letter. 

53 In connection with the proposed amendments, 

the Proposal also would renumber the paragraphs 

within § 3.3(e) and make other non-substantive 

changes related to the renumbering. Those changes 

are being adopted for the reasons stated in the 

Proposal. 

notes that, pursuant to § 3.3(a)(1), the 

CCO has a direct reporting line to the 

board or the senior officer of the 

Registrant. To the extent the CCO 

determines that he or she cannot fulfill 

the duty established in § 3.3(d)(3) 

because of the actions or inaction of 

others, a lack of resources, or otherwise, 

the CCO has an avenue for escalating 

these issues to the highest level of 

management within the Registrant. In 

doing so, the CCO may be able to 

demonstrate that he or she has taken 

reasonable steps to fulfill the duty 

created in § 3.3(d)(3). 

4. Regulation 3.3(d)(4) and (5)—Duty To 

Remediate Noncompliance Issues 

The Commission proposed to amend 

§ 3.3(d)(4) by adding language that the 

duty to remediate noncompliance issues 

identified by the CCO encompasses 

maintaining and reviewing, in addition 

to establishing, written policies and 

procedures. The Commission also 

proposed to amend § 3.3(d)(4) and (5) by 

removing the requirement that the CCO 

consult with the board of directors or 

senior officer in establishing: (1) 

Policies and procedures for the 

remediation of noncompliance issues 

identified by the CCO; and (2) 

procedures for the handling, 

management response, remediation, 

retesting, and closing of noncompliance 

issues. The Proposal would also clarify 

that the policies and procedures should 

be ‘‘reasonably designed’’ to remediate 

noncompliance issues. Lastly, the 

Commission proposed to amend 

paragraph (d)(4) to include the 

remediation of matters identified 

‘‘through any means’’ by the CCO, 

including the specific discovery 

methods already listed in § 3.3(d)(4). 

FIA/SIFMA generally supported the 

Commission’s proposed amendments to 

paragraphs (d)(4) and (5), and requested 

that the Commission further add to 

paragraphs (d)(4) and (5) that the CCO’s 

duty is to take ‘‘reasonable steps to 

ensure that the registrant’’ establishes 

the required policies and procedures for 

the remediation of noncompliance 

issues, rather than to be directly 

responsible for establishing the policies 

and procedures. FIA/SIFMA noted that 

this change, consistent with the SEC’s 

CCO rules, reflects the fact that it is the 

responsibility of the Registrant, not the 

CCO in his or her personal capacity, to 

establish the specified policies and 

procedures. 

Better Markets disagreed with the 

Commission’s proposed changes. Better 

Markets contended that the removal of 

the board of directors and senior officer 

consultation requirement could 

marginalize the board of directors’ role 

and send the message that the board of 

directors needs to be only occasionally 

involved in the remediation of 

noncompliance issues. Better Markets 

further asserted that the proposed 

change that policies and procedures be 

‘‘reasonably designed’’ makes it easier 

for Registrants to meet their legal 

obligations without actually realizing 

the underlying regulatory goal of 

remediating noncompliance issues. 

With respect to the specific 

noncompliance discovery methods 

listed in paragraph (d)(4), ISDA 

recommended that the Commission 

provide legal certainty to Registrants by 

clarifying that the term ‘‘complaint that 

can be validated’’ means ‘‘a written 

complaint that can be supported upon a 

reasonable investigation.’’ 52 ISDA noted 

that this clarification would further 

harmonize the Commission’s CCO Rules 

with the SEC’s, and would provide legal 

certainty with respect to which kinds of 

noncompliance issues need to be 

escalated to the CCO. 

In light of the comments received, the 

Commission is adopting proposed 

paragraphs (d)(4) and (5) with 

additional modifications to clarify the 

Commission’s position that the CCO’s 

duty with respect to establishing the 

Registrant’s noncompliance remediation 

policies and procedures is to take 

reasonable steps to ensure that the 

registrant fulfills that responsibility. 

Accordingly, § 3.3(d)(4) and (5), as 

adopted, require a CCO to take 

‘‘reasonable steps to ensure the 

registrant’’ establishes, maintains and 

reviews the applicable policies and 

procedures. With respect to the other 

proposed amendments to paragraphs 

(d)(4) and (5), the Commission is 

adopting those amendments for the 

reasons discussed in the Proposal. 

In response to the concern raised by 

Better Markets that removing the 

consultation clause will diminish the 

board of directors and senior officer 

role, the Commission believes that there 

are two reasons to maintain the 

proposed changes to § 3.3(d)(4) and (5). 

As discussed in the Proposal, the CCO 

should manage and remediate 

noncompliance issues in consultation, 

as appropriate, with personnel that are 

experts in these matters, including, if 

appropriate, senior management and the 

board of directors. Requiring further 

consultation with the board of directors 

or the senior officer on these procedures 

in the ordinary course would be an 

unnecessary burden on the Registrants. 

Furthermore, the Commission notes 

that, under § 3.3(a)(1), the CCO must 

report to the board of directors or the 

senior officer. Accordingly, to the extent 

the CCO is of the view that the policies 

and procedures being established do not 

meet the requirements of the 

Commission’s regulations and is unable 

to effect the necessary changes through 

other means, it would be appropriate for 

the CCO, as a reasonable step for 

ensuring that the appropriate policies 

and procedures are established, to 

elevate the issue to the board of 

directors or the senior officer to whom 

the CCO reports. Thus, an appropriate 

avenue for consultation with the board 

of directors or the senior officer is 

already part of the regulatory 

requirements in the CCO Rules. 

With respect to ISDA’s 

recommendation that the Commission 

clarify the ‘‘complaint that can be 

validated’’ standard, the Commission 

declines to clarify the standard in the 

manner requested. The Commission 

believes that noncompliance should be 

a focus for CCOs, and accordingly, all 

noncompliance complaints, whether 

written or verbal, should be investigated 

using reasonable means. The 

Commission further notes that the CCO 

may identify noncompliance issues 

‘‘through any means’’ and ‘‘a complaint 

that can be validated’’ is one of many 

ways in which a CCO may identify such 

issues. 

C. Regulation 3.3(e)—CCO Annual 

Report 

Below is a subsection-by-subsection 

review of the comments received on the 

proposed changes to the CCO Annual 

Report requirements and a description 

of the changes being adopted.53 On 

December 22, 2014, CFTC staff issued 

Advisory No. 14–153 providing 

guidance to Registrants on the form and 

content requirements of the CCO 

Annual Reports (‘‘CCO Annual Report 

Advisory’’). In their comment letter, 

FIA/SIFMA requested that the 

Commission address the effect of the 

rule amendments on the guidance in the 

CCO Annual Report Advisory. 

The Commission believes that 

providing updated guidance in concert 


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54Three commenters expressed general support 

of the proposed amendments to § 3.3(e). See TD 

Ameritrade, FIA/SIFMA, and ISDA comment 

letters. 

55The Commission notes that § 3.3(e)(1) retains 

the statutory requirement in CEA section 

4s(k)(3)(A)(ii), 7 U.S.C. 6s(k)(3)(A)(ii), to describe 

the Registrant’s Conflict of Interest and Code of 

Ethics policies (if the Registrant had previously 

adopted a Code of Ethics). 

56See ISDA comment letter. 

57See NFA comment letter. 

58See Better Markets comment letter. 

59See ISDA comment letter. 

60See FIA/SIFMA comment letter. 

61See CCO Rules Adopting Release, 77 FR at 

20190. 

62 Id. at 20193. 

63 Id. at 20164. 

with adopting the amendments to 

§ 3.3(e) will help to increase the final 

rule’s efficiency and clarity. 

Accordingly, the Commission is 

providing guidance regarding the CCO 

Annual Report in new Appendix C to 

Part 3, ‘‘Guidance on the Application of 

Rule 3.3(e), Chief Compliance Officer 

Annual Report Form and Content.’’ The 

CCO Annual Report Advisory is hereby 

superseded by this final release 

including the new Appendix C to Part 

3. The Commission or its staff may issue 

updated guidance regarding the CCO 

Annual Report in the future based on 

experience gained as Registrants 

implement the amended content 

requirements. 

1. Regulation 3.3(e)(1)—Description of 

the Registrant’s WPPs 

Section 3.3(e)(1) requires a CCO to 

describe the Registrant’s WPPs, 

including its code of ethics and conflicts 

of interest (‘‘COI’’) policies. Proposed 

§ 3.3(e)(1) sought to clarify that only the 

WPPs that relate to a Registrant’s 

business as an FCM, SD, or MSP must 

be described in the CCO Annual Report 

by adding text referring to the policies 

and procedures described in § 3.3(d). 

The Commission did not receive any 

comments specific to proposed 

§ 3.3(e)(1),54 and is adopting amended 

§ 3.3(e)(1) as proposed.55

2. Regulation 3.3(e)(2)—Assessment of 

the Effectiveness of the Policies and 

Procedures 

Proposed § 3.3(e)(2) would eliminate 

the express mandate to identify and 

assess the effectiveness of each WPP for 

each regulatory requirement under the 

CEA and Commission regulations in the 

CCO Annual Report. The Commission 

received six comments regarding this 

proposed amendment. FIA/SIFMA, 

ISDA, NFA, and TD Ameritrade 

generally supported the change. 

Specifically, ISDA noted that the 

proposed revisions ‘‘would strike a 

proper balance between providing the 

Commission with meaningful analyses 

of firms’ compliance programs and 

conserving the time and resources of 

both the Commission and firms.’’ 56

Similarly, NFA stated, ‘‘NFA believes it 

will improve the quality of the report by 

allowing firms to focus on providing 

meaningful summaries of their WPPs, 

together with a detailed discussion of 

the annual assessment and 

recommended improvements.’’ 57

Better Markets opposed the proposed 

amendment and expressed its belief that 

the ‘‘detailed assessment of the policies 

and procedures, relative to each specific 

regulatory requirement, is a valuable 

exercise that brings rigor to the 

process.’’ 58 ACM explained that 

Registrants, using ACM’s product, often 

obtain sub-certifications from subject 

matter experts within the firm for each 

applicable requirement. ACM sought 

clarification regarding whether the 

proposed amendment is intended to 

eliminate the requirement-byrequirement review. 

The Commission has considered the 

comments and is adopting amended 

§ 3.3(e)(2) as proposed. As adopted, the 

rule requires the CCO Annual Report to 

contain, among other things, a 

description of the CCO’s assessment of 

the effectiveness of the Registrant’s 

WPPs relating to its business as an FCM, 

SD, or MSP. In response to Better 

Markets and ACM, the Commission 

affirms that the rule, as amended, does 

not require the CCO Annual Report to 

contain an assessment of the WPPs’ 

effectiveness with respect to each 

applicable requirement under the Act 

and regulations. However, the CCO 

must still conduct an underlying 

assessment of the policies and 

procedures to meet the requirements of 

the rule. The Commission affirms that 

Registrants may still rely on the use of 

sub-certifications or any other 

methodology they have previously 

employed to conduct the assessment of 

their compliance programs pursuant to 

§ 3.3(d) and (e). 

In further response to Better Markets’ 

concern that removing the requirementby-requirement assessment from the 

CCO Annual Report would weaken the 

self-assessment process, the 

Commission notes that the final rule 

does not remove a CCO’s duty to 

undertake the review. The Commission 

believes that a robust and meaningful 

self-assessment process is maintained 

through the affirmative CCO duties to 

ensure review of the WPPs and to 

describe the CCO’s assessment in the 

CCO Annual Report. Furthermore, as 

described in the Proposal, the 

Commission believes that reducing the 

burden associated with preparing the 

CCO Annual Report will permit CCOs 

and Registrants to both improve their 

compliance assessment processes and 

allocate more time and resources to 

more critical areas within the firm. 

3. Regulation 3.3(e)(4)—Resources Set 

Aside for Compliance 

Proposed § 3.3(e)(4) would clarify that 

the discussion of resources only need 

address those resources set aside for 

compliance activities that relate to the 

Registrant’s business as an FCM, SD, or 

MSP. The Commission received 

comments from FIA/SIFMA, NFA, and 

ISDA generally supporting the proposed 

amendment. ISDA suggested that the 

Commission rescind related guidance in 

the CCO Annual Report Advisory 

regarding quantification of resources 

and allow Registrants to provide a 

narrative assessment of the sufficiency 

of compliance resources.59 Similarly, 

FIA/SIFMA requested that the 

Commission state that Rule 3.3(e)(4) 

does not require specific numerical 

estimates.60

The Commission is adopting amended 

§ 3.3(e)(4) as proposed. Regarding the 

description of compliance resources, the 

Commission previously addressed the 

issues raised by ISDA, FIA, and SIFMA 

in the CCO Rules Adopting Release. At 

the outset, the Commission has 

recognized that a primary purpose of the 

CCO Annual Report is to provide ‘‘an 

efficient means to focus the registrant’s 

board and senior management on areas 

requiring additional compliance 

resources.’’ 61 A detailed discussion of 

the current state of compliance 

resources, including as appropriate, 

quantitative information, forms an 

integral part of a CCO Annual Report 

that, as the Commission stated, ‘‘will 

help FCMs, SDs, MSPs and the 

Commission to assess whether the 

registrant has mechanisms in place to 

address adequately compliance 

problems that could lead to a failure of 

the registrant.’’ 62 In requiring a 

description of the compliance resources 

in the CCO Annual Report, but not 

prescribing the description’s form or 

manner (which is left to the Registrant’s 

reasonable discretion) the Commission 

is balancing the need for context and 

critical information, and the potential 

burdens on the CCO in performing the 

underlying resources identification and 

analysis.63

The description of resources required 

by § 3.3(e)(4) is intended to inform the 

Registrant and the Commission as to the 

sufficiency of resources dedicated to 


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64See ISDA and FIA/SIFMA comment letters. 

65A conforming change was made to 

§ 3.3(f)(1)(iii) regarding making and maintaining a 

record of furnishing the report to the board of 

directors or the senior officer, and the audit 

committee. 

66See SEC Adopting Release, 81 FR at 30105 

(estimating that approximately 55 entities might 

register as security-based swap dealers or major 

security-based swap participants). 

compliance. Moreover, by requiring 

inclusion in the CCO Annual Report, 

the Commission recognizes that the 

usefulness of this information may lie in 

the trends and impacts of isolated 

events that can be observed over time 

regarding staffing levels, financial 

resources devoted to compliance, or the 

addition or subtraction of operational or 

technological resources. Some of the 

categories of resources CCOs are 

required to describe under § 3.3(e)(4) 

are, by their nature, quantitative (e.g., 

number of compliance personnel and 

budgetary information). However, the 

Commission also recognizes that, 

depending on a Registrant’s structure 

and the nature of its business, a 

quantitative description may include 

approximations and estimates. It is the 

Commission’s view that, in complying 

with § 3.3(e)(4), each Registrant should 

focus on whether its CCO Annual 

Report is effectively providing its senior 

leadership and the Commission with the 

ability to reasonably assess the state of 

the Registrant’s compliance resources, 

irrespective of how it expresses the 

quantitative information. 

D. Regulation 3.3(f)—Furnishing the 

CCO Annual Report and Related 

Matters 

In view of the comments received on 

proposed § 3.3(f) and related matters, 

the Commission is making a number of 

changes described below. As a general 

matter, to provide the reader greater 

clarity, the Commission is adding 

descriptive paragraph headings to 

§ 3.3(f)(1) through (6) for the final rule. 

1. Regulation 3.3(f)(1)—Furnishing the 

CCO Annual Report 

Proposed § 3.3(f)(1) would harmonize 

the requirements under the SEC and 

CFTC CCO Rules to require that the 

CCO Annual Report be furnished to all 

members of the board of directors, 

senior officer, and audit committee (or 

equivalent body) prior to being 

furnished to the Commission. 

The Commission received three 

comments addressing the proposed 

amendment. Better Markets supported 

the proposed amendment as a means to 

strengthen the CCO framework. ISDA 

and FIA/SIFMA opposed the 

amendment and asserted that it is 

burdensome and unnecessary in light of 

the variability among Registrants. 

Specifically, ISDA and FIA/SIFMA 

commented that the proposed 

amendment would add burdens and 

costs given that the audit committees 

and boards of directors do not 

necessarily meet prior to the deadline to 

file the CCO Annual Report with the 

Commission.64 FIA/SIFMA also 

contended that harmonization with the 

SEC is not appropriate for this rule 

because there is greater variety of 

corporate forms and organizational 

structures among FCMs, SDs, and MSPs 

than SEC-regulated entities and the 

change may raise questions for those 

Registrants that do not have a board of 

directors or audit committee. 

Additionally, FIA/SIFMA asserted the 

board of directors of an SD that is part 

of a large, diversified commercial bank 

may already have full meeting agendas 

that do not warrant the addition of 

another board obligation. Alternatively, 

ISDA and FIA/SIFMA commented that 

if the Commission decided to adopt the 

proposed amendment, it should make 

appropriate modifications to 

accommodate existing board and audit 

committee meeting schedules. FIA/ 

SIFMA also sought further clarification 

that the rule would not require a 

Registrant to establish a board of 

directors or audit committee, and that it 

could be satisfied through submission to 

certain other equivalent personnel. 

After considering commenters’ 

concerns, the Commission has 

determined to retain the current 

approach in § 3.3(f)(1) to require the 

CCO to provide the annual report to the 

board of directors or the senior officer 

prior to furnishing it to the 

Commission.65 The Commission, 

however, is also adopting a modified 

version of proposed § 3.3(f)(1) with 

respect to furnishing the CCO Annual 

Report to the audit committee (or 

equivalent body). In response to 

comments, § 3.3(f)(1)(ii), as adopted, 

requires that the CCO Annual Report 

must be furnished to the audit 

committee (or equivalent body), if the 

Registrant has such a committee. In 

addition, if the Registrant has an audit 

committee (or equivalent body), then 

the CCO Annual Report must be 

furnished to that committee not later 

than its next scheduled meeting after 

the date on which the CCO Annual 

Report is furnished to the Commission, 

but in no event more than 90 days after 

the Registrant’s CCO Annual Report is 

furnished to the Commission. The 

Commission is adding the 90 day time 

frame to ensure that the audit committee 

receives the report in a timely manner 

in furtherance of this provision, but 

without causing unnecessary disruption 

to its operation. 

The Commission believes that a 

flexible approach to the timing of 

furnishing the CCO Annual Report to 

the audit committee (or equivalent 

body) addresses commenters’ concerns 

about meeting schedules and the CCO 

Annual Report submission deadline and 

better serves the underlying purpose of 

furnishing the report to the appropriate 

representatives of senior management at 

a time that allows for appropriate 

review by them. The Commission 

further believes that although the rule as 

adopted is not identical to the SEC’s 

approach, the two approaches both 

preserve the goal of ensuring that 

management with overall responsibility 

for governance and internal controls is 

informed of the Registrant’s state of 

compliance in a timely manner while 

recognizing the inherent differences 

between CFTC and SEC Registrants. The 

SEC’s CCO rules apply to security-based 

swap dealers and major security-based 

swap participants, which are likely to 

consist of a smaller number of large 

financial entities or affiliates thereof, 

most of which are likely required by 

regulation to have audit committees.66

By contrast, the CFTC’s CCO Rules 

apply to SDs that range from large 

financial enterprises to regional banks to 

commodity dealers to limited purpose 

affiliates, as well as FCMs. In light of 

this greater variety of firms subject to 

the CFTC CCO Rules, the Commission 

believes a more flexible approach is 

appropriate. 

Similarly, in response to FIA/SIFMA’s 

comment that some Registrants may not 

have a board of directors or audit 

committee, the Commission 

acknowledges that some types of 

entities that are Registrants are not 

required to have such bodies, 

particularly audit committees, and 

therefor may not have established such 

a body. The Commission affirms that the 

rule was not intended to require 

Registrants to establish either type of 

body. Accordingly, the final rule text 

provides that furnishment to the audit 

committee or equivalent body is 

required only if such a committee or 

body has been established. If not, 

compliance with § 3.3(f)(1) may be met 

by furnishing the CCO Annual Report to 

the senior officer or board members 

only, as applicable. 

2. Regulation 3.3(f)(3)—Certification 

In response to the Commission’s 

request for comment on additional 

changes to further harmonize with the 


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67CCO Rules Adopting Release, 77 FR at 20163. 

68 Id. 

69 Id. at 20162–3. 

70The Commission also notes that adding ‘‘in all 

material respects’’ to § 3.3(f)(3) is consistent with 

the related duty under § 3.3(f)(4) to promptly amend 

and recertify the CCO Annual Report if ‘‘material 

errors or omissions’’ in the report are identified 

(emphasis added). 

SEC regulations that correspond to 

§ 3.3(f), the Commission received four 

comments regarding the CCO Annual 

Report certification language in 

§ 3.3(f)(3). Citing the Commission’s 

stated goal of harmonizing § 3.3 with 

SEC rule 15Fk–1(c)(2)(ii)(D) and 

concerns regarding potential excess 

CCO liability, NFA, FIA/SIFMA, and 

ISDA urged the Commission to include 

a materiality qualifier. FIA/SIFMA and 

ISDA recommended that the phrase ‘‘in 

all material respects’’ be added. TD 

Ameritrade requested that the 

Commission assess whether the ‘‘under 

the penalty of law’’ standard is the 

correct standard for CCOs. 

The Commission is adopting § 3.3(f) 

as proposed with one change. The 

Commission is adding qualifying 

language, ‘‘in all material respects’’ to 

the requirement to certify that the 

information contained in the CCO 

Annual Report is accurate and 

complete. Consistent with the SEC’s 

approach, this modification provides a 

reasonable standard and additional 

clarity regarding the obligations and 

potential liability of the certifying 

official. When the Commission adopted 

the CCO Rules in 2012, it was of the 

view that limiting the certification 

language with the qualification ‘‘to the 

best of his or her knowledge and 

reasonable belief’’ would address 

concerns of overbroad liability.67 The 

rule, the Commission reasoned, ‘‘would 

not impose liability for compliance 

matters that are beyond the certifying 

officer’s knowledge and reasonable 

belief at the time of the certification.’’ 68

This language, however, as noted by 

FIA/SIFMA, ISDA, and TD Ameritrade, 

may not completely address concerns 

regarding immaterial inaccuracies or 

omissions in the CCO Annual Report, 

notwithstanding the certifying official’s 

good faith efforts to exercise appropriate 

due diligence. 

As noted in the CCO Rules Adopting 

Release, the Commission appreciates 

that, for many Registrants, the breadth 

and complexity of the information 

contained in the CCO Annual Report 

inherently requires reliance on many 

individuals to gather the information 

for, and prepare, the report.69 The 

Commission understands that 

immaterial inaccuracies or omissions 

rarely undermine the compliance 

information contained in the CCO 

Annual Report. Accordingly, it is 

reasonable and appropriate to expect 

that the CCO or chief executive officer 

would, ‘‘to the best of his or her 

knowledge and reasonable belief’’ 

certify that ‘‘the information in in the 

annual report is accurate and complete 

in all material respects’’ (emphasis 

added).70

3. Regulation 3.3(f)(6)—Incorporation by 

Reference and Treatment of Affiliated 

Registrants 

FIA/SIFMA commented that, because 

affiliated SDs often share a common SD 

compliance program, much of the 

information in the CCO Annual Reports 

is the same. FIA/SIFMA therefore 

requested that the Commission permit 

flexibility in how reports from affiliated 

registrants address common matters. 

The Commission believes that, as a 

procedural matter within the scope of 

this rulemaking, it is appropriate to 

provide the requested flexibility. 

Permitting the consolidation of all 

relevant information concerning 

Registrants that control, are controlled 

by, or are under common control with, 

other Registrants (‘‘Affiliated 

Registrants’’) into one cohesive report 

could lead to greater efficiency for those 

Registrants and improved regulatory 

oversight. In addition, the request is 

consistent with provisions in § 3.3(f)(6) 

permitting individual Registrants and 

Registrants that are registered in more 

than one capacity, e.g., as an SD and 

FCM (‘‘Dual Registrants’’), to 

incorporate by reference sections of a 

CCO Annual Report furnished to the 

Commission within the current or 

immediately preceding reporting period. 

Accordingly, the Commission is 

amending § 3.3(f)(6) to permit Affiliated 

Registrants to incorporate within their 

CCO Annual Reports information shared 

across related Registrants. 

More broadly, the Commission 

believes that the annual compliance 

reporting requirement should not be 

subject to restrictive formatting 

requirements that do not serve the 

purpose of the reports. To the extent 

that the same information can be 

presented once for multiple reporting 

requirements (e.g., for a Dual Registrant 

or Affiliated Registrants) thereby 

creating efficiencies without 

undermining the purpose and utility of 

the CCO Annual Report, the 

Commission believes it is appropriate to 

permit the practice. In view of the 

foregoing, the Commission is 

reorganizing § 3.3(f)(6) into three 

subparagraphs to more clearly set forth 

the different scenarios in which 

Affiliated Registrants or Dual 

Registrants can present the same 

information used in multiple reports or 

file one combined report addressing 

multiple reporting requirements. 

New subparagraph (i) incorporates 

without modification the current 

language in § 3.3(f)(6). Subparagraph (i) 

permits an individual Registrant to 

incorporate by reference sections in a 

CCO Annual Report that it furnished to 

the Commission within the current or 

immediately preceding reporting period. 

Like § 3.3(f)(6) as originally adopted, 

new subparagraph (ii) permits Dual 

Registrants to cross-reference sections in 

CCO Annual Reports submitted on 

behalf of either of its registrations 

within the current or immediately 

preceding reporting period. To address 

ambiguity regarding whether 

incorporation by reference can be 

achieved through the annual 

preparation and submission of a single 

CCO Annual Report by a Dual 

Registrant, the Commission is adding 

clarifying language to § 3.3(f)(6)(ii). 

Under new § 3.3(f)(6)(ii), a Dual 

Registrant may submit a single CCO 

Annual Report covering the annual 

reporting requirements relevant to each 

registration category, provided that: (1) 

The requirements of § 3.3(e) are clearly 

addressed and identifiable as they apply 

to the Dual Registrant in each of its 

registration capacities; (2) to the extent 

a section of the CCO Annual Report 

addresses shared compliance programs, 

resources, or other elements related to 

compliance, there is a clear description 

of the commonality and delineation of 

any differences; and (3) the Registrant 

complies with the requirements of 

§ 3.3(f)(1) and (3) to certify and furnish 

the CCO Annual Report for each of its 

registrations. Regarding this last 

requirement, the Commission would 

expect the Dual Registrant to separately 

certify the CCO Annual Report with 

respect to each registration category, 

even if the same CCO or CEO serves as 

the certifying officer for each 

registration. 

Subparagraph 3.3(f)(6)(iii) permits 

Affiliated Registrants to use 

incorporation by reference within their 

individually required CCO Annual 

Reports to address matters shared across 

related registered legal entities. The 

Commission believes that providing 

greater flexibility to Affiliated 

Registrants may provide a more efficient 

process in achieving the goals of the 

CCO Annual Report by leveraging 

current structures and expertise. 

Regarding the extent of incorporation by 

reference, consistent with the 

Commission’s view that a flexible 

approach as to form is warranted, the 


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71See Prohibitions and Restrictions on 

Proprietary Trading and Certain Interests in, and 

Relationships with, Hedge Funds and Private 

Equity Funds, 79 FR 5808, 6020 n. 2521 (Jan. 31, 

2014). 

72 5 U.S.C. 601 et seq. 

73 44 U.S.C. 3501 et seq. 

Commission is not prescribing a strict 

requirement. For example, Affiliated 

Registrants could submit two separate 

reports, one of which incorporates by 

reference listed sections of the other. As 

another example, Affiliated Registrants 

could create a master report covering 

multiple affiliates in a manner similar to 

that described above for Dual 

Registrants in which information 

common to the affiliates is provided 

once in the report and identified as such 

and then other sections or appendices 

provide information specific to each 

affiliate separately. To the extent 

Affiliated Registrants choose to combine 

the contents of their individual CCO 

Annual Reports, the Commission would 

require the CCO or CEO for each 

Registrant to certify the applicable 

contents of the report consistent with 

§ 3.3(f)(3). 

The Commission expects that CCOs of 

Affiliated Registrants who share 

common compliance program elements 

be actively engaged in evaluating, 

assessing, and advising senior 

management with regard to those 

elements within their respective duties 

to a particular Registrant. Accordingly, 

how a CCO determines to address such 

common compliance program elements 

should not undermine the content or 

representations made in the CCO 

Annual Report so long as the references 

are clear and the information is fully 

accessible to senior management and 

the Commission. 

E. Other Comments 

1. Volcker Rule 

The Commission received two 

comments regarding the compliance 

requirements of subpart D of part 75 of 

the Commission’s regulations and their 

relation to § 3.3. Specifically, FIA/ 

SIFMA requested that the Commission 

revisit the footnote in the part 75 

adopting release that includes the 

compliance requirements under subpart 

D of part 75 among the regulations 

covered by § 3.3(d) and (e).71 Similarly, 

ISDA requested that the Commission 

remove the requirement for an 

applicable FCM or SD to address 

Volcker compliance program 

requirements in its CCO Annual Report. 

At this time, the Commission is 

declining to address the Volcker Rule 

compliance program requirements issue, 

as it was not considered in the Proposal. 

However, the Commission notes that the 

issue that commenters are raising 

requires serious consideration, and it 

may address the issue in future 

guidance or rulemakings. 

2. Substituted Compliance 

The Commission received three 

comments regarding the applicability of 

the Proposal to its outstanding 

comparability determinations for nonU.S. SDs and MSPs. ISDA, the JBA, and 

Allen & Overy requested clarification 

from the Commission that the proposed 

amendments will not have any impact 

on the current substituted compliance 

determinations that pertain to § 3.3. The 

Commission confirms that any existing 

substituted compliance determinations 

with respect to § 3.3 are not affected by 

this rulemaking. 

IV. Related Matters 

A. Regulatory Flexibility Act 

The Regulatory Flexibility Act 

(‘‘RFA’’) 72 requires that agencies 

consider whether a proposed rule will 

have a significant economic impact on 

a substantial number of small entities 

and, if so, provide a regulatory 

flexibility analysis of the impact. As 

noted in the Proposal, the regulations 

adopted herein would affect FCMs, SDs, 

and MSPs that are required to be 

registered with the Commission. The 

Commission has previously determined 

that FCMs, SDs, and MSPs are not small 

entities for purposes of the RFA. The 

Commission received no comments on 

the Proposal’s RFA discussion. 

Accordingly, the Chairman, on behalf of 

the Commission, certifies, pursuant to 5 

U.S.C. 605(b), that these regulations will 

not have a significant economic impact 

on a substantial number of small 

entities. 

B. Paperwork Reduction Act 

The Paperwork Reduction Act of 1995 

(‘‘PRA’’) 73 provides that a federal 

agency may not conduct or sponsor, and 

a person is not required to respond to, 

a collection of information unless it 

displays a currently valid control 

number issued by the Office of 

Management and Budget (‘‘OMB’’). As 

discussed in the Proposal, the final rules 

contain a collection of information for 

which the Commission has previously 

received a control number from OMB. 

The title for this collection of 

information is OMB control number 

3038–0080—Annual Report for Chief 

Compliance Officer of Registrants. As a 

general matter, the rules, as adopted: (1) 

Define the term ‘‘senior officer’’; (2) 

clarify the scope of the CCO duties and 

the content requirements of the CCO 

Annual Report; (3) add the Registrant’s 

audit committee as a party that must 

receive the CCO Annual Report; (4) add 

a materiality qualifier to the CCO 

Annual Report certification language; 

and (5) provide procedural instruction 

for Dual and Affiliated Registrants in the 

preparation and submission of CCO 

Annual Reports that address common 

information across the same or related 

legal entities. As discussed in the 

Proposal and herein, the Commission 

believes that these regulations, as 

adopted, will not impose any new 

information collection requirements that 

require approval of OMB under the 

PRA. As such, the final rules do not 

impose any new burden or any new 

information collection requirements in 

addition to those that already exist in 

connection with the preparation and 

delivery of the CCO Annual Report 

pursuant to the Commission’s 

regulations. 

C. Cost-Benefit Considerations 

1. General Considerations 

Section 15(a) of the CEA requires the 

Commission to consider the costs and 

benefits of its actions before 

promulgating a regulation under the 

CEA or issuing certain orders. Section 

15(a) further specifies that the costs and 

benefits shall be evaluated in light of 

five broad areas of market and public 

concern: (1) Protection of market 

participants and the public; (2) 

efficiency, competitiveness, and 

financial integrity of futures markets; (3) 

price discovery; (4) sound risk 

management practices; and (5) other 

public interest considerations. The 

Commission considers the costs and 

benefits resulting from its discretionary 

determinations with respect to the 

section 15(a) factors relative to the 

status quo baseline—that is existing 

§ 3.3—and how various regulated 

entities comply with existing § 3.3 

today. 

The Commission notes that the 

consideration of costs and benefits 

below is based on the understanding 

that the markets function 

internationally, with many transactions 

involving U.S. firms taking place across 

international boundaries; with some 

Commission registrants being organized 

outside of the United States; with 

leading industry members typically 

conducting operations both within and 

outside the United States; and with 

industry members commonly following 

substantially similar business practices 

wherever located. While the 

Commission does not specifically refer 

to matters of location, the below 

discussion of costs and benefits refers to 


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74 7 U.S.C. 2(i). 

75The final rules add a definition of ‘‘senior 

officer’’ to § 3.1. As stated in the Proposal, the 

Commission believes this addition in and of itself 

had no impact for purposes of determining the costs 

and benefits of the proposal. Nevertheless, the 

Commission sought public comment on whether 

the definition of ‘‘senior officer’’ has any cost and 

benefit considerations. The Commission received 

no comments on any cost and benefit 

considerations of the proposed definition, and, 

therefore, the analysis of the costs and benefits of 

the final rules is restricted to the amendments to 

§ 3.3. 

76Better Markets comment letter. 

77See FIA/SIFMA comment letter. 

the effects of the final rule on all activity 

subject to the final regulation, whether 

by virtue of the activity’s physical 

location in the United States or by 

virtue of the activity’s connection with 

or effect on U.S. commerce under CEA 

section 2(i).74 In particular, the 

Commission notes that some registrants 

subject to § 3.3 are located outside of the 

United States. 

The Commission is adopting 

amendments to the CCO Rules that: (1) 

Define the term ‘‘senior officer’’; (2) 

clarify the scope of the CCO duties and 

the content requirements of the CCO 

Annual Report; (3) add the Registrant’s 

audit committee as a party that must 

receive the CCO Annual Report; (4) add 

a materiality qualifier to the CCO 

Annual Report certification language; 

and (5) clarify and permit additional 

procedural methods for Dual and 

Affiliated Registrants in the preparation 

and submission of CCO Annual Reports 

that address common information across 

the same or related legal entities. 

The Proposal requested public 

comment on the costs and benefits of 

the proposed regulations, and 

specifically invited comments on: (1) 

The extent to which the proposed 

amendments reduce burdens and costs 

for Registrants, if at all; (2) whether any 

of the proposed amendments create any 

additional burdens or costs for 

Registrants; (3) whether the nature of, 

and the extent to which, costs 

associated with the CCO duties 

described in § 3.3(d) could change as a 

result of the adoption of the Proposal, 

including monetary estimates; (4) what, 

if any, transition or ongoing costs or 

savings would result from the adoption 

of the proposed amendments; (5) 

whether the proposed amendments to 

the CCO Annual Report’s submission 

requirements in § 3.3(f)(1) would cause 

undue burden; and (6) the 

Commission’s preliminary 

consideration of the costs and benefits 

associated with the proposed 

amendments. 

Several commenters indirectly 

addressed the qualitative costs and 

benefits of the Proposal; however, none 

included quantitative data or other 

information in support of a measurable 

analysis. As such, the Commission is 

unable to quantify reliably the costs and 

benefits of this rulemaking. Instead, the 

Commission gives a qualitative 

discussion. 

As described in the sections above, in 

support of their comments, several 

commenters proposed alternative rule 

text and suggested the Commission 

provide additional clarification or 

guidance. In response to certain 

comments, the Commission adopted 

alternatives—particularly with respect 

to the furnishing and certification 

requirements of the CCO Annual 

Report—that the Commission believes 

will further reduce costs and burdens to 

Registrants while still providing the 

Commission with the information it 

needs to monitor the state of compliance 

by Registrants. 

Informed by commenters, the 

discussion below considers the rule’s 

costs and benefits generally and in light 

of the five factors specified in section 

15(a) of the CEA.75

2. Regulation 3.3(d)—Chief Compliance 

Officer Duties 

As discussed above, the Commission 

amended § 3.3(d) to clarify certain CCO 

duties. Specifically, the Commission 

added language to § 3.3(d)(1) to clarify 

that the CCO’s duty with respect to 

administering policies and procedures 

is specific to the Registrant’s business as 

an FCM, SD, or MSP, as applicable. As 

amended, § 3.3(d)(2) incorporates an 

implied reasonableness standard 

regarding the duty to resolve conflicts of 

interest and limits the duty to material 

conflicts that relate to the Registrant’s 

business as an FCM, SD, or MSP. The 

Commission amended § 3.3(d)(4) to 

include the remediation of matters 

identified ‘‘through any means’’ by the 

CCO, including the specific discovery 

methods listed in § 3.3(d)(4). Lastly, the 

Commission amended § 3.3(d)(4) and (5) 

to remove the requirement in each 

provision that the CCO consult with the 

board of directors or senior officer in 

connection with resolving 

noncompliance issues and to clarify that 

the CCO’s duty is to take ‘‘reasonable 

steps to ensure that the registrant’’ 

establishes policies and procedures for 

the remediation and resolution by 

management of noncompliance issues. 

The Commission did not receive any 

specific comments regarding whether 

any costs associated with CCO duties 

would change as a result of the 

amendments to § 3.3(d). Better Markets 

opposed several of the proposed 

amendments to § 3.3(d) that it viewed as 

‘‘likely to weaken the CCO regime.’’ 76

The Commission considered Better 

Markets views and does not believe that 

the final rules will reduce CCO 

accountability or marginalize the CCO 

role. Because the amendments to 

§ 3.3(d) provide greater specificity 

regarding the role of the CCO and the 

scope of the CCO’s duties while further 

harmonizing with parallel SEC rules, 

the Commission believes that the final 

rule does not impose any additional 

costs to Registrants, market participants, 

the markets, or the general public. 

The Commission expects the greater 

clarity provided in the amended rule 

will reduce burdens on CCOs and 

improve overall compliance by applying 

a reasonableness standard to CCO 

responsibilities rather than deterring 

effective CCO activities due to concerns 

of uncertain liability. This greater clarity 

should also encourage a greater 

willingness of potential CCOs to vie for 

and take positions with Registrants. As 

noted by one commenter, clarifying the 

CCO’s role within a Registrant’s overall 

organization fosters accountability for 

senior business management and 

supervisors, and reduces obstacles in 

attracting and retaining highly qualified 

professionals to serve as CCOs.77

Additionally, by further harmonizing 

the CFTC’s and SEC’s CCO duties, CCOs 

of dual SEC–CFTC registrants should be 

able to fulfill their duties more 

efficiently and cost effectively. 

3. Regulation 3.3(e)—Annual Report 

In adopting amendments to § 3.3(e), 

the Commission eliminated the 

requirement to address ‘‘each’’ 

applicable CFTC regulatory requirement 

to which a Registrant is subject in the 

assessment of the WPPs, since the CCO 

must still conduct an underlying 

assessment of the effectiveness of the 

policies and procedures to meet the 

requirements of the rule. The 

Commission further removed the 

requirement to identify each WPP with 

respect to each applicable requirement, 

given that the WPPs are already 

required to be described in § 3.3(e)(1). 

Lastly, the Commission clarified that the 

scope of the resources devoted to 

compliance that need to be described 

under § 3.3(e)(4) should be limited to a 

discussion of resources for the specific 

activities for which the Registrant is 

registered. 

The comments received for these 

proposed amendments were generally 

supportive. For example, one 

commenter stated that ‘‘this Proposal 

will increase efficiencies by 


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78See NGSA comment letter. 

79See TD Ameritrade comment letter. See also 

NFA comment letter. 

80See FIA/SIFMA comment letter. 

81See Better Markets comment letter. 

82See FIA/SIFMA, ISDA, and NFA comment 

letters. 

streamlining the obligations for market 

participants that are regulated by both 

the CFTC and SEC and eliminate 

unnecessary duplicative policies related 

to the CCO Annual Report.’’ 78 One 

commenter stated that the removal of 

the requirement-by-requirement 

assessment from the rule will ‘‘allow for 

more effective conversations to occur 

between its business partners and the 

Compliance Department, creating for a 

more holistic assessment of the Firm’s 

compliance.’’ 79 Similarly, another 

commenter highlighted the benefit to 

overall compliance of focusing the CCO 

and compliance personnel on WPPs 

holistically.80 Only one commenter 

expressed a concern that the proposed 

changes equated to a weakening of the 

process.81

As discussed in the Proposal, in 

implementing § 3.3(e), the Commission 

received consistent feedback from 

Registrants that the exercise of 

documenting their assessment on a 

requirement-by-requirement basis was 

creating a significant economic burden 

in time and resources. Eliminating the 

requirement-by-requirement assessment 

is intended to reduce the burdens on 

Registrants of producing the CCO 

Annual Report while maintaining its 

primary purpose. It is the Commission’s 

view, supported by commenters, that by 

reducing the burden associated with 

this aspect of the CCO Annual Report, 

CCO and other compliance resources 

may be better focused on other 

compliance functions. As discussed in 

section II.C.2, the final rule does not 

remove or lessen the CCO’s duties to, 

among other things, ensure the 

Registrant is reviewing and assessing 

the continued soundness of its WPPs. In 

addition, the amendments harmonize 

certain CFTC and SEC CCO Annual 

Report content requirements in an effort 

to reduce the costs to dual registrants of 

complying with two regulatory regimes. 

The Commission believes that the final 

rule also provides relief for Registrants 

from resource and time pressures in 

preparing their CCO Annual Reports. 

4. Regulation 3.3(f)—Furnishing the 

Annual Report and Related Matters 

The Commission amended § 3.3(f)(1) 

to require the CCO to provide the CCO 

Annual Report to the audit committee or 

a functionally equivalent body not later 

than the committee’s next scheduled 

meeting, but in no event more than 90 

days following the furnishing of the 

report to the Commission. The 

Commission also amended the CCO 

Annual Report’s certification 

requirement by adding a materiality 

qualifier to the certification language in 

§ 3.3(f)(3). Lastly, the Commission 

amended § 3.3(f)(6) to provide 

procedures for Dual and Affiliated 

Registrants in the preparation and 

submission of CCO Annual Reports that 

address common information across the 

same or related legal entities. 

As discussed above, the Commission 

received comments from ISDA and FIA/ 

SIFMA asserting that the proposal 

requiring the senior officer, board of 

directors, and audit committee to 

receive the CCO Annual Report would 

increase operational and regulatory 

burdens. FIA/SIFMA noted that 

requiring the boards of directors of SDs 

that are large, diversified commercial 

banks to receive the CCO Annual Report 

would exacerbate current problems 

associated with the volume of review 

they must already undertake, further 

reducing the amount of time they 

should be allocating to overseeing 

enterprise risk and strategy. Both 

commenters believed that the Proposal 

would add costs, complexities, and 

possibly, conflicts for Registrants 

because the deadline to submit the CCO 

Annual Report to the Commission may 

not align with board of directors and 

audit committee meetings, impeding 

their ability to ensure proper review. 

Advocates of adding a materiality 

qualifier to the CCO Annual Report 

certification language identified several 

benefits, including reducing burdens by 

further harmonizing the Commission’s 

rule with the SEC’s parallel rule, 

providing a measure of clarity to CCOs 

and potential CCOs regarding their own 

personal liability, and reducing 

deterrence of highly qualified people 

from taking or staying in the CCO role.82

In support of its request for greater 

flexibility in the preparation of CCO 

Annual Reports by Affiliated 

Registrants, FIA/SIFMA noted the 

benefits of streamlining the overall 

process. 

In response to concerns regarding the 

proposed CCO Annual Report 

submission requirements, the 

Commission has modified § 3.3(f)(1) to 

accommodate the practicality of audit 

committee and board meeting 

schedules. Because the final rule 

maintains the requirement that either 

the senior officer or the board of 

directors receive the CCO Annual 

Report prior to its submission to the 

Commission, Registrants should not 

have to change existing internal 

document submission processes for 

board meetings to comply. As adopted, 

the final rule adds the audit committee 

(or equivalent body) as a recipient of the 

report, but allows for the report to be 

furnished to the audit committee not 

later than the next scheduled meeting, 

but in no event more than 90 days after 

submission of the report to the 

Commission is required. Since the rule 

does not set a timeline for the review of 

the CCO Annual Report by any of its 

internal recipients—leaving such 

matters to the discretion of each 

Registrant, the Commission believes that 

any additional costs arising out of the 

requirement to submit the report to the 

audit committee should be minimal. 

The Commission does not believe the 

final amendments to § 3.3(f)(1), (3) and 

(6) impose any new costs or burdens 

since they do not require Registrants to 

affirmatively undertake new duties or 

requirements. 

As described above and in the 

Proposal, the Commission believes that 

the amendments to § 3.3(f) will ensure 

that the CCO’s findings and 

recommendations will be distributed to 

the groups within each Registrant with 

responsibility for governance and 

internal controls. Further, the 

Commission believes the amendments 

provide greater flexibility and 

opportunity for Dual and Affiliated 

Registrants to streamline their CCO 

Annual Report preparation processes, 

which may result in a less costly CCO 

Annual Report. 

D. Section 15(a) Factors 

As noted above, section 15(a) of the 

CEA specifies that the costs and benefits 

shall be evaluated in light of five broad 

areas of market and public concern: (1) 

Protection of market participants and 

the public; (2) efficiency, 

competitiveness, and financial integrity 

of futures markets; (3) price discovery; 

(4) sound risk management practices; 

and (5) other public interest 

considerations. 

1. Protection of Market Participants and 

the Public 

The final rules will continue to 

protect market participants and the 

public because they do not 

fundamentally alter the CCO duties or 

the annual compliance reporting 

requirements of § 3.3. While the 

amendment removing the requirementby-requirement reporting may reduce 

the extent of reporting detail, the 

Commission believes that change will 

allow the CCO to focus more directly on 

identifying and describing in the CCO 

Annual Report material compliance 


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83See, e.g., 17 CFR 23.600. 84 7 U.S.C. 19(b). 

issues and other related matters 

deserving of greater attention. 

Accordingly, the Commission believes 

that the reduction in content 

requirements will not affect the 

protection of market participants and 

the public. 

2. Efficiency, Competitiveness, and 

Financial Integrity of Markets 

The Commission believes that the 

amended CCO Rules will not negatively 

impact market efficiency, 

competitiveness, or integrity because 

each CCO Annual Report addresses 

internal compliance programs of each 

Registrant and are not publicly 

available. The amendments affecting 

CCO duties only clarify those duties and 

do not affect the performance of 

derivatives markets. 

3. Price Discovery 

The Commission did not identify a 

specific effect on price discovery as a 

result of the Proposal because the 

Proposal did not address any pricing 

issues. The Commission did not receive 

any comments on this issue. Thus, the 

Commission continues to believe that 

this rulemaking will not have an impact 

on price discovery. 

4. Sound Risk Management Practices 

The Commission believes that the 

final amendments to the CCO duties and 

CCO Annual Report requirements will 

not have a meaningful effect on 

Registrants’ risk management practices. 

The final rules do not directly impact a 

Registrant’s risk management practices 

because they clarify the scope of the 

CCO’s duties and CCO Annual Report 

contents, and do not require changes to 

a Registrant’s risk management 

program.83 Furthermore, the final 

amendments to the CCO Annual Report 

content requirements do not affect the 

Registrant’s obligation to address 

material noncompliance issues relating 

to its risk management program in the 

CCO Annual Report. The Commission 

believes that including the audit 

committee and either the board of 

directors or the senior officer as 

recipients of the CCO Annual Report 

may benefit Registrants’ overall risk 

management practices by ensuring that 

those with overall responsibility for 

governance and internal controls are 

informed of the report contents. Finally, 

the Commission does not believe that 

the addition of the materiality qualifier 

to the CCO Annual Report certification 

language, or the additional procedural 

mechanisms for addressing common 

matter across Dual and Affiliated 

Registrants impacts Registrants’ risk 

management practices, as they do not 

impact the CCO Annual Report’s 

content and underlying assessment. 

5. Other Public Interest Considerations 

The Commission has not identified 

any other public interest considerations 

for this rulemaking. 

E. Antitrust Considerations 

Section 15(b) of the Act requires the 

Commission to take into consideration 

the public interest to be protected by the 

antitrust laws and endeavor to take the 

least anticompetitive means of 

achieving the purposes of the Act, in 

issuing any order or adopting any 

Commission rule or regulation 

(including any exemption under section 

4(c) or 4c(b)), or in requiring or 

approving any bylaw, rule, or regulation 

of a contract market or registered futures 

association established pursuant to 

section 17 of the Act.84 The Commission 

believes that the public interest to be 

protected by the antitrust laws is 

generally to protect competition. 

The Commission has reflected on the 

final rule to determine whether it is 

anticompetitive and has identified no 

anticompetitive effects. Because the 

Commission has determined that the 

final rulemaking has no anticompetitive 

effects, the Commission has not 

identified any less anticompetitive 

means of achieving the purposes of the 

Act. 

List of Subjects in 17 CFR Part 3 

Administrative practice and 

procedure, Chief compliance officer, 

Commodity futures, Futures 

commission merchants, Major swap 

participants, Registration, Swap dealers, 

Reporting and recordkeeping 

requirements. 

For the reasons stated in the 

preamble, the Commodity Futures 

Trading Commission amends 17 CFR 

chapter I as follows: 

PART 3—REGISTRATION 

■ 1. The authority citation for part 3 

continues to read as follows: 

Authority: 5 U.S.C. 552, 552b; 7 U.S.C. 1a, 

2, 6a, 6b, 6b–1, 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 

6m, 6n, 6o, 6p, 6s, 8, 9, 9a, 12, 12a, 13b, 13c, 

16a, 18, 19, 21, and 23. 

■ 2. In § 3.1, add paragraph (j) to read 

as follows: 

§ 3.1 Definitions. 

* * * * * 

(j) Senior officer. Senior officer means 

the chief executive officer or other 

equivalent officer of a registrant. 

■ 3. In § 3.3, revise paragraphs (d), (e), 

and (f) to read as follows: 

§ 3.3 Chief compliance officer. 

* * * * * 

(d) Chief compliance officer duties. 

The chief compliance officer’s duties 

shall include, but are not limited to: 

(1) Administering each of the 

registrant’s policies and procedures 

relating to its business as a futures 

commission merchant, swap dealer, or 

major swap participant that are required 

to be established pursuant to the Act 

and Commission regulations; 

(2) In consultation with the board of 

directors or the senior officer, taking 

reasonable steps to resolve material 

conflicts of interest relating to the 

registrant’s business as a futures 

commission merchant, swap dealer, or 

major swap participant that may arise; 

(3) Taking reasonable steps to ensure 

compliance with the Act and 

Commission regulations relating to the 

registrant’s business as a futures 

commission merchant, swap dealer or 

major swap participant; 

(4) Taking reasonable steps to ensure 

the registrant establishes, maintains, 

and reviews written policies and 

procedures reasonably designed to 

remediate noncompliance issues 

identified by the chief compliance 

officer through any means, including 

any compliance office review, lookback, internal or external audit finding, 

self-reporting to the Commission and 

other appropriate authorities, or 

complaint that can be validated; 

(5) Taking reasonable steps to ensure 

the registrant establishes written 

procedures reasonably designed for the 

handling, management response, 

remediation, retesting, and resolution of 

noncompliance issues; and 

(6) Preparing and signing the annual 

report required under paragraphs (e) 

and (f) of this section. 

(e) Annual report. The chief 

compliance officer annually shall 

prepare a written report that covers the 

most recently completed fiscal year of 

the futures commission merchant, swap 

dealer, or major swap participant. The 

annual report shall, at a minimum, 

contain a description of: 

(1) The written policies and 

procedures of the futures commission 

merchant, swap dealer, or major swap 

participant described in paragraph (d) of 

this section, including the code of ethics 

and conflicts of interest policies; 

(2) The futures commission 

merchant’s, swap dealer’s, or major 

swap participant’s assessment of the 


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effectiveness of its policies and 

procedures relating to its business as a 

futures commission merchant, swap 

dealer or major swap participant; 

(3) Areas for improvement, and 

recommended potential or prospective 

changes or improvements to its 

compliance program and resources 

devoted to compliance; 

(4) The financial, managerial, 

operational, and staffing resources set 

aside for compliance with respect to the 

Act and Commission regulations 

relating to its business as a futures 

commission merchant, swap dealer or 

major swap participant, including any 

material deficiencies in such resources; 

(5) Any material noncompliance 

issues identified and the corresponding 

action taken; and 

(6) Any material changes to 

compliance policies and procedures 

during the coverage period for the 

report. 

(f) Furnishing the annual report and 

related matters—(1) Furnishing the 

annual report. (i) Prior to furnishing the 

annual report to the Commission, the 

chief compliance officer shall provide 

the annual report to the board of 

directors or senior officer of the futures 

commission merchant, swap dealer, or 

major swap participant for its review. 

(ii) If the futures commission 

merchant, swap dealer, or major swap 

participant has established an audit 

committee (or an equivalent body), then 

the chief compliance officer shall 

furnish the annual report to the audit 

committee (or equivalent body) not later 

than its next scheduled meeting after 

the annual report is furnished to the 

Commission, but in no event more than 

90 days after the applicable date 

specified in paragraph (f)(2) of this 

section for furnishing the annual report 

to the Commission. 

(iii) A written record of transmittal of 

the annual report to the board of 

directors or the senior officer, and audit 

committee, if applicable, shall be made 

and maintained in accordance with 

§ 1.31 of this chapter. 

(2) Furnishing the annual report to 

the Commission. (i) Except as provided 

in paragraph (f)(2)(ii) of this section, the 

annual report shall be furnished 

electronically to the Commission not 

more than 90 days after the end of the 

fiscal year of the futures commission 

merchant, swap dealer, or major swap 

participant. 

(ii) The annual report of a swap dealer 

or major swap participant that is eligible 

to comply with a substituted 

compliance regime for paragraph (e) of 

this section pursuant to a comparability 

determination of the Commission may 

be furnished to the Commission 

electronically up to 15 days after the 

date on which the comparable annual 

report must be completed under the 

requirements of the applicable 

substituted compliance regime. If the 

substituted compliance regime does not 

specify a date by which the comparable 

annual report must be completed, then 

the annual report shall be furnished to 

the Commission by the date specified in 

paragraph (f)(2)(i) of this section. 

(3) Certification. The report shall 

include a certification by the chief 

compliance officer or chief executive 

officer of the registrant that, to the best 

of his or her knowledge and reasonable 

belief, and under penalty of law, the 

information contained in the annual 

report is accurate and complete in all 

material respects. 

(4) Amending the annual report. The 

futures commission merchant, swap 

dealer, or major swap participant shall 

promptly furnish an amended annual 

report if material errors or omissions in 

the report are identified. An amendment 

must contain the certification required 

under paragraph (f)(3) of this section. 

(5) Extensions. A futures commission 

merchant, swap dealer, or major swap 

participant may request from the 

Commission an extension of time to 

furnish its annual report, provided the 

registrant’s failure to timely furnish the 

report could not be eliminated by the 

registrant without unreasonable effort or 

expense. Extensions of the deadline will 

be granted at the discretion of the 

Commission. 

(6) Incorporation by reference and 

related registrants—(i) Prior reports. A 

futures commission merchant, swap 

dealer, or major swap participant may 

incorporate by reference sections of an 

annual report that has been furnished 

within the current or immediately 

preceding reporting period to the 

Commission. 

(ii) Dual registrants. If a futures 

commission merchant, swap dealer, or 

major swap participant is registered in 

more than one capacity with the 

Commission, an annual report 

submitted as one registrant may 

incorporate by reference sections in the 

annual report furnished within the 

current or immediately preceding 

reporting period as the other registrant. 

A dual registrant may submit one 

annual report that addresses the 

requirements set forth in paragraphs (e), 

(f)(1) and (f)(3) of this section with 

respect to each registration capacity. 

(iii) Affiliated registrants. If a futures 

commission merchant, swap dealer, or 

major swap participant controls, is 

controlled by, or is under common 

control with, one or more other futures 

commission merchants, swap dealers, or 

major swap participants, and each of the 

affiliated registrants must submit an 

annual report, an affiliated registrant 

may incorporate by reference in its 

annual report sections from an annual 

report prepared by any of its affiliated 

registrants furnished within the current 

or immediately preceding reporting 

period. Affiliated registrants may submit 

one annual report that addresses the 

requirements set forth in paragraphs (e), 

(f)(1) and (f)(3) of this section with 

respect to each affiliated registrant. 

* * * * * 

■ 4. Add appendix C to part 3 to read 

as follows: 

Appendix C to Part 3—Guidance on the 

Application of § 3.3(e), Chief 

Compliance Officer Annual Report 

Form and Content 

A. Description of the Registrant’s WPPs 

(§ 3.3(e)(1)) 

In acknowledgment of the large number of 

WPPs that a Registrant implements to comply 

with CFTC regulations, the Commission 

understands that for purposes of the CCO 

Annual Report, specific WPP descriptions 

may be appropriately brief while still 

identifying the basic purpose of the policy or 

procedure and how the policy or procedure 

operates to achieve that purpose. The CCO 

Annual Report should include a summary 

overview that describes the general forms 

and types of WPPs the Registrant has, such 

as a compliance manual specific to the 

Registrant, global corporate manuals or 

policies, and/or business-unit-specific WPPs 

that support the applicable regulatory 

requirements. This summary overview would 

provide a narrative of the Registrant’s system 

or program of WPPs, how they work as a 

whole, and how the Registrant generally puts 

the WPPs into practice as part of its 

compliance activities. With respect to the 

COI policy, it is the Commission’s view that 

the CCO should describe the COI policy 

specific to the Registrant, addressing the 

specific requirements of § 1.71 or § 23.605 of 

this chapter, as applicable. 

B. Assessment of the Effectiveness of the 

Policies and Procedures (§ 3.3(e)(2)) 

The Commission expects a CCO Annual 

Report to contain a comprehensive 

discussion of: the assessment process; and 

the results of the effectiveness assessment. 

The regulation does not dictate the form or 

manner for the effectiveness assessment. 

Rather, the Commission would expect each 

Registrant to follow a process and present the 

resulting assessment in a form and manner 

that is appropriate for the size and 

complexity of the Registrant’s applicable 

business activities and structure. While 

§ 3.3(e)(2) no longer has a ‘‘requirement-byrequirement’’ standard, the CCO Annual 

Report should address all of the general areas 

of regulation applicable to the Registrant. 

C. Areas for Improvement and Recommended 

Changes (§ 3.3(e)(3)) 

1. Section 3.3(e)(3) requires two 

components in the CCO Annual Report: an 


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identification and discussion of each area 

that needs improvement; and a discussion of 

what changes are recommended to address 

each area needing improvement. In 

addressing these two elements, the CCO 

Annual Report should include, as applicable: 

A discussion of why the particular area needs 

improvement; a discussion of the proposed 

improvements and the time frame for their 

implementation; and a cross-reference to the 

regulation that a recommended change 

would address. 

2. In general, identifying areas in need of 

improvement and recommending steps to 

effect those improvements should be a core 

function of compliance. Accordingly, a CCO 

Annual Report that makes no 

recommendations for changes or 

improvements to the compliance program 

may raise concerns about the adequacy of the 

compliance program review intended by the 

CCO Annual Report process. Moreover, there 

should be continuity from one reporting 

cycle to the next, such that where a previous 

CCO Annual Report discussed future changes 

or improvements that were being considered 

or planned, subsequent CCO Annual Reports 

should discuss the outcomes of the changes 

that were implemented during the most 

recent scope period, any monitoring or 

testing of those changes, whether any 

compliance issues arose from the changes 

and, if there were any issues, how those 

issues were handled. While this section may 

address improvements to the compliance 

program that have already been completed, 

the Commission believes that this section 

primarily should discuss recommended 

improvements in process and/or future plans 

to improve the Registrant’s compliance 

program or resources devoted to compliance. 

D. Resources Set Aside for Compliance 

(§ 3.3(e)(4)) 

1. The resources description required by 

§ 3.3(e)(4) should be appropriate for assisting 

the Registrant’s senior management and the 

CFTC in assessing whether sufficient 

resources are dedicated to compliance. 

Accordingly, the description should include 

the following types of information: the 

budget allocated to the compliance 

department of the Registrant for compliance 

with the CEA and Commission regulations; 

full-time compliance staffing levels for such 

compliance activities; partially allocated staff 

counts (if applicable), with information on 

how much of such employees’ time is 

devoted to the Registrant’s compliance 

matters that are subject to CFTC oversight; an 

explanation of managerial resources (the 

explanation should clearly identify the 

division between staffing resources and 

management resources devoted to 

compliance); general infrastructure 

information (e.g., computers, complianceoriented software, technology infrastructure, 

etc.); and if applicable, a description of the 

use of third party vendors or outsourcing for 

compliance activities. In most cases, to 

effectively inform the board of directors or 

senior officer and the Commission, the 

description should include quantifiable 

information for the financial, managerial, 

operational, and staffing resources allocated 

to compliance with the CEA and Commission 

regulations. 

2. The Commission understands that a 

discussion of specific compliance budget 

allocations may not be as straightforward as 

described above depending on the size and 

complexity of the Registrant’s compliance 

program and the extent to which the 

Registrant’s compliance resources may be 

shared for other non-CFTC regulated 

business activities. The purpose of the CCO 

Annual Report requirement is to convey to 

senior management and the CFTC a clear 

understanding of the resources the Registrant 

has set aside for compliance with the CEA 

and Commission regulations. While some of 

the compliance resources used in a 

Registrant’s CFTC compliance-related 

program may be used for compliance 

activities in other parts of a larger corporate 

enterprise, this sharing of resources does not 

negate the Registrant’s obligation to discuss 

how the Registrant’s compliance program is 

being resourced. For those instances where 

compliance resources are shared, it is 

recognized that the description of the shared 

resources may reasonably be more general in 

nature, providing approximations and 

estimates based on expected needs. However, 

the Commission expects that the CCO 

Annual Report will still address shared 

resources in as much detail as is necessary 

to convey the information needed to assess 

the overall compliance activities of the 

Registrant. 

3. Section 3.3(e)(4) also requires that the 

CCO Annual Report include a discussion of 

any material deficiencies in compliance 

resources. If there have been reductions in 

the compliance program of the Registrant 

since the prior reporting period, for example, 

if there has been a reduction in compliance 

staff, a significant compliance budget 

decrease, or the Registrant initiated 

significant new business activities without a 

corresponding increase in compliance 

resources, the CCO Annual Report should 

include an explanation of why the 

compliance resources are not deficient in 

light of the changes. If there are no material 

deficiencies in the resources devoted to 

compliance, the Commission recommends 

that the CCO Annual Report contain an 

express statement to that effect so that the 

recipients of the report can see that the 

requirement was assessed. 

E. Material Noncompliance Issues 

(§ 3.3(e)(5)) 

The CCO Annual Report should include an 

explanation of the standard the Registrant 

used to determine a non-compliance event’s 

materiality. In addition, this section of the 

CCO Annual Report should contain a 

description of each material non-compliance 

issue identified either through selfassessment procedures conducted within the 

Registrant, or noted by any external entities 

which conducted a review of the Registrant 

(such as a designated self-regulatory 

organization). The description should also 

include the corresponding actions taken, 

described in reasonable detail, as well as 

specific references to the Commission 

regulation or regulations that are implicated 

by the non-compliance event. Specifically, 

the Commission recommends that the CCO 

Annual Report include a discussion of the 

Registrant’s deliberations on a course of 

remediation, how the implementation of the 

remediation is being or was executed, any 

follow-up testing of the remediation, and any 

noteworthy results from such testing. 

Additionally, the Commission recommends 

that CCOs consider including an overview of 

how the CCO or compliance department 

handles and tracks non-compliance events in 

general. 

F. Material Changes to WPPs (§ 3.3(e)(6)) 

When describing any material changes to 

the WPPs, a description of the standard of 

materiality used should be provided. This 

description will provide meaningful context 

for any reported changes to the WPPs. 

Issued in Washington, DC, on August 21, 

2018, by the Commission. 

Christopher Kirkpatrick, 

Secretary of the Commission. 

Note: The following appendices will not 

appear in the Code of Federal Regulations. 

Appendices to Chief Compliance 

Officer Duties and Annual Report 

Requirements for Futures Commission 

Merchants, Swap Dealers, and Major 

Swap Participants; Amendments— 

Commission Voting Summary and 

Chairman’s Statement 

Appendix 1—Commission Voting 

Summary 

On this matter, Chairman Giancarlo and 

Commissioners Quintenz and Behnam voted 

in the affirmative. No Commissioner voted in 

the negative. 

Appendix 2—Statement of Chairman J. 

Christopher Giancarlo 

As part of the CFTC’s Project KISS efforts, 

this final rule will streamline and clarify a 

Chief Compliance Officer’s (CCO) 

obligations, as well as harmonize certain 

provisions with the Securities and Exchange 

Commission’s (SEC) rules. Clarifying the role 

and responsibilities of the CCO should 

enable greater accountability and improve 

overall compliance, as well as reduce 

burdens on CCOs and uncertainty for 

registrants. The rule continues to impose a 

duty on CCOs to resolve matters but within 

the practical limits of their position at the 

CFTC-registered entity. The rule also 

continues to impose a duty for the CCO to 

undertake an annual review but reduces the 

burdens associated with the review, which 

will allow the CCO to devote more time and 

resources to compliance activities at the 

registrant. In addition, further harmonizing 

definitions and CCO duties of dual CFTC– 

SEC registrants should improve efficiency 

and further reduce the burdens on CCOs. 

I would like to thank CFTC staff for their 

efforts. I would also like to thank 

Commissioners Quintenz and Behnam for 

their support. 

[FR Doc. 2018–18432 Filed 8–24–18; 8:45 am] 

BILLING CODE 6351–01–P 


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