CFTC Provides Very Limited No-Action Relief to Swap Dealers' Associated Persons Subject to Statutory Disqualification (with Lofchie Comment)
The CFTC's Division of Swap Dealer and Intermediary Oversight (DSIO) issued a no-action letter for Swap Entities (SDs and MSPs), providing (limited) relief from compliance with the prohibition in CFTC Rule 23.22(b) against permitting a person who is subject to a statutory disqualification to effect or be involved in effecting swaps on behalf of the Swap Entity. The attached letter provides relief from the statutory disqualification requirement only with respect to:
(i) non-domestic associated persons (APs) of Swap Entities who deal only with "non-domestic swap counterparties"; and (ii) persons employed in a clerical or ministerial capacity by Swap Entities.
According to the letter, this relief is intended to align the treatment of these persons with the treatment of other associated persons of CFTC registrants.
Lofchie Comment: As a technical matter, I note the reference in the letter to contact with "non-domestic swap counterparties." Presumably, the CFTC elected to avoid using the term "U.S. person" given the ongoing uncertainty associated with that definition for purposes of the swaps regulations. That said, the term likewise has some ambiguity associated with it, and each firm will have to decide how to reasonably interpret it. While relief from the CFTC on any score is always sufficiently welcome that one feels ungrateful in asking for more, I am disappointed with the limits in this letter. As the CFTC knows, the fundamental problem is that there is a mechanism in place to waive statutory disqualification with respect to principals of swap dealers, but there is not one in place to waive such disqualification with respect to associated persons. I don't think anyone believes that the absence of a waiver mechanism for associated persons is a deliberate policy choice; it is simply a glitch in Dodd-Frank that ought to be corrected. The failure to do so endangers the jobs of persons who might have been convicted a long time ago of a relatively minor offense having nothing whatsoever to do with personal honesty. If the CFTC believes that it has the authority to grant some no-action relief with respect to associated persons, then it ought to find a means to grant fuller relief so as to save anyone from losing employment as the result of a statutory glitch.
See: CFTC Letter 12-43: Regulation 23.22(b) - Prohibition against associating with a person subject to a statutory disqualification; No-Action