NFA Revises Documentation Requirements for Swap Dealer Registration

Steven Lofchie Commentary by Steven Lofchie

The National Futures Association ("NFA") revised the procedure to be followed by swap dealers ("SDs") and major swap participants ("MSPs") when submitting documentation demonstrating their ability to comply with CFTC Regulations implementing Commodity Exchange Act, Section 4s ("Section 4s").

Pursuant to Section 4s, SDs and MSPs must satisfy compliance standards in a variety of areas in order to become registered with the CFTC. These standards include requirements relating to capital and margin, reporting and recordkeeping, and daily trading records, as well as business conduct standards, documentation standards, requirements for the designation of a chief compliance officer, and segregation requirements for uncleared swaps. In a Notice to Members, the NFA explained that SDs and MSPs will not be required to demonstrate compliance by submitting documentation for each topic area covered by Section 4s. Instead of submitting what the NFA referred to as "4s documentation," SDs and MSPs will be able to demonstrate their ability to comply by submitting an attestation confirming the adoption of policies and procedures designed to ensure compliance with each Section 4s-implementing rule requirement. Additionally, the NFA will no longer issue Feedback Letters in order to provide commentary on submitted Section 4s compliance documents.

Commentary

While this should shorten the registration process somewhat, it does not reduce the burden on firms to produce and maintain compliance procedures. Further, firms will lose whatever benefit they might have received from having the NFA conduct a compliance documentation review and confirm (or at least not deny) the adequacy of their compliance processes.

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