CFTC Issues No-Action Relief from CCO Swap Dealer Reporting Line Requirements (CFTC Letter 14-158) (with Lofchie Comment)

The CFTC Division of Swap Dealer and Intermediary Oversight issued conditional no-action relief to a provisionally registered swap dealer ("firm") regarding certain chief compliance officer ("CCO") reporting line requirements under CFTC Rules.

Subject to conditions in the letter, the no-action relief permits the firm to:

• maintain a limited reporting line for the CCO to the "governing body" established pursuant to CFTC Rule 23.600;
• undertake the CCO consultations required under Rule 3.3 with the governing body instead of the board of directors or senior officer (with summary reports provided to the board or senior officer); and
• have the CCO meet with the governing body at least annually and at the election of the CCO, rather than with the board of directors or senior officer, so long as the CCO is able to meet with the board or senior officer at the CCO's election.

The relief was provided based on the facts and circumstances specific to the swap dealer receiving the relief. In addition to satisfying the other conditions for relief, the board and the senior officer are required to maintain continuing involvement in the CCO's activities, in accordance with certain requirements listed in the letter.

Lofchie Comment: This is a modest correction of one of the most absurd compliance requirements in Dodd-Frank (see Section 731): that the compliance officer in charge of swaps must report directly to the swap dealer's board of directors, even though swaps may comprise only a tiny part of the swap dealer's business and swaps compliance is but one of the myriad areas of regulatory compliance to which a swap dealer (which is typically a global bank) is subject. Now that the CFTC staff has conceded that this requirement (which ought to be removed from the statute) is not sacrosanct, other swap dealers should consider seeking similar relief.

See: CFTC Letter 14-158; CFTC Press Release.