Grygo is chief content officer for FTF.
The CFTC’s Division of Enforcement (DOE) is spelling out what it means when it says that a firm has been cooperative via an enforcement investigation. The goal is to let the public get a better view into how a firm maximized cooperation and minimized painful penalties.
The clarity comes from a new guidance that the DOE recently issued for enforcement staff, allowing them to take into consideration “a respondent’s cooperation, self-reporting, or remediation,” according to the CFTC. The program is an effort to foster a culture of compliance among derivatives industry participants.
In fact, the new guidance presents potential scenarios where DOE staff may better evaluate a firm’s level of commitment:
- For the “No self-reporting, cooperation, or remediation” designation, DOE says it’s a situation where a respondent has not self-reported, cooperated with an investigation, or remediated anything via the advisories. “The fact that the Division does not recommend recognition of cooperation does not mean that the respondent was uncooperative or obstructive. Rather, it merely indicates that the respondent did not cooperate in a manner that materially advanced the Division’s investigation or otherwise met the factors set out in the Advisories.” Translated to English, the CFTC is saying that firms may want to think twice about stonewalling and make some effort to work with DOE staff.
- The next level up is the “No self-reporting, but cognizable cooperation and/or remediation that warrant recognition but not a recommended reduction in penalty.” The DOE may “recognize a non-self-reporting respondent’s cooperation or remediation” but not reduce a penalty. The respondent “will have satisfied one or more of the factors set out in the Advisories, but the cooperation would not have materially assisted the Division’s investigation in the manner required to warrant a recommended reduction in penalty. It will be insufficient to warrant recognition in this context if the respondent has merely done what is required by law.”
- At the “No self-reporting, but substantial cooperation and/or remediation resulting in a reduced penalty” level, firms will have to help out a lot at “a level of cooperation that was substantial … and/or engaged in substantial remediation to address the misconduct and materially develop or strengthen related internal controls,” according to the guidance. “The Division will also recommend that the Commission enforcement order describe the particular acts of cooperation and/or remediation that merited recognition.”
- For the “Self-reporting, substantial cooperation, and remediation resulting in a substantially reduced penalty” scenario, firms have to do a lot. “Where a respondent has self-reported, substantially cooperated in a manner that materially advanced the Division’s investigation, and remediated in accordance with the Advisories, the Division will recommend the most significant reduction in penalty to the Commission,” according to the guidance.
The DOE guidance also spells out the legal gobbledygook that staff will use when finalizing their actions and orders.
The new staff guidance will not change DOE’s existing practices for evaluating a firm’s total effort during an investigation — those were clarified in 2017, the CFTC adds. “Rather, it clarifies how that recognition will be reflected in CFTC enforcement orders,” officials add.
“Ultimately, the purpose of the CFTC’s enforcement program is to foster a culture of compliance within the marketplaces we regulate. This staff guidance furthers that goal by ensuring the public understands the levels of recognition the CFTC may provide in its enforcement orders,” says Heath P. Tarbert, chairman of the CFTC, in a prepared statement.
The full text of the guidance can be found here: https://bit.ly/3eA5YDT
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