CFTC Provides Staff Guidance on Resolving Enforcement Actions

The CFTC Division of Enforcement ("Division") provided guidance to staff when proposing resolutions in enforcement actions. The guidance is intended to ensure resolutions that achieve deterrence and minimize future misconduct. The guidance applies to proposed resolutions of federal court and administrative enforcement actions.

In the advisory, the CFTC focused on:

• Penalties. Under the Division's recalibration for determining civil monetary penalty ("CMP") amounts, proposed resolutions that contain higher penalties may be imposed rather than for similar previous violations in order to increase deterrent impact. The Division said that higher CMPs may be particularly appropriate for recidivist respondents in light of resolutions that in the past failed to achieve deterrence. To evaluate whether a case involves recidivist behavior, the new guidance requires consideration of (i) the degree of similarity between prior and present CFTC actions, including the time elapsed between offenses, (ii) the involvement of overlapping management, (iii) the degree to which new misconduct is pervasive and (iv) the effectiveness of remedial steps undertaken and sustained since the prior resolution.
• Compliance Monitors or Consultants. The Division recommends the use of approved monitors for cases involving "the most significant and/or pervasive compliance and control failures." For less severe cases - those in which the Division is persuaded that "the entity requires the assistance of a neutral third party to advise regarding remediation, but can otherwise remediate its misconduct without oversight" - the Division recommends the use of consultants, which would not require the approval of the Division.
• Admissions. The Division provided criteria (both for and against) for staff to consider before requiring admissions to resolve an enforcement action. The Division said that such determinations are "fact intensive" and emphasized that during negotiations respondents should no longer assume that "no-admit, no-deny resolutions are the default."

Statements

In remarks before the NYU School of Law Program on Corporate Compliance and Enforcement, CFTC Director of Enforcement Ian McGinley warned against insufficient monetary penalties. He said that such resolutions may embolden entities to behave unlawfully and consider the fine to be "the cost of doing business." He argued that the approach under the issued guidance aims to strike a balance between incentivizing settlements and deterring misconduct by making it clear to market participants that "there will be significant consequences for misconduct – and that self-reporting and cooperation are ways to mitigate those consequences."

CFTC Commissioner Christy Goldsmith Romero commended the Division for adopting her proposal to replace routine practice of "neither-admit-not-deny" settlements with case-by-case consideration regarding whether to require admission of wrongdoing. She emphasized that "[e]specially for well-resourced institutions, like Wall Street banks, requiring admissions can bring greater public accountability and have more of a deterrent impact than penalties alone."