CFTC Staff Issues Guidance on Enforcement Referrals

In an advisory, CFTC staff highlighted the criteria they will use before referring a metter to the Division of Enforcement ("DoE") following a registrant or registered entity's self-report of a potential violation.

The jointly issued advisory included staff from the CFTC's Market Participants Division, Division of Clearing and Risk and Division of Market Oversight (the "Operating Divisions"), in coordination with the DoE. The advisory follows February 2025 guidance addressing self-reporting, cooperation and remediation, which identified factors to be considered when imposing penalties for firms that self-report or co-operate.  

According to the advisory, the Operating Divisions will only refer a matter to the DoE if it involves a "material" violation, that causes harm to clients, counterparties, or market participants; undermines market integrity; or results in significant financial loss. On supervision over non-compliance issues, staff emphasized they will not refer matters to DoE unless the issue is material. Staff also urged registrants that self-report to exercise judgment and report directly to DoE in cases involving "fraud, manipulation, or abuse."

To determine materiality, staff said they would apply a reasonableness standard based on the size, activity and complexity of the registrant or registered entity. Staff said that materiality may be found where there are:

• "especially egregious or prolonged systematic deficiencies" in a compliance or supervisory system;

• "knowing or willful misconduct by management," including efforts to conceal violations; or

• a failure to make "substantial progress" on remediation efforts over an unreasonably long period.

Staff clarified that a missed remediation deadline, by itself, would not trigger a referral to DoE, nor will isolated technical or operational issues, unless they result in broad impact or systemic failures.