United States: CFTC Proposes Amendments To Recordkeeping Requirements

Last Updated: February 9 2017
Article by Derivatives In Review

On January 12, the Commodity Futures Trading Commission ("CFTC") unanimously approved the proposal of numerous amendments to CFTC Regulation 1.31, the regulation that sets forth the recordkeeping requirements for records required to be kept under the U.S. Commodity Exchange Act (the "Act") and the CFTC's regulations, including with respect to swaps.1  The proposed amendments are largely intended to modernize and make technology-neutral the form and manner in which regulatory records are kept.2

The last major revision of Regulation 1.31 was made in 1999, when records were largely kept in paper form and before the prevalence of advanced electronic information systems.3  Through the proposed amendments, the CFTC intends to update, reorganize and, effectively, re-write Regulation 1.31, while maintaining its ability to examine and inspect required records.4

The proposed amendments provide for three new important defined terms:5

  • Records entity means any person required by the Act or [CFTC] regulations . . . to keep regulatory records.
  • Regulatory records means all books and records required to be kept by the Act or [CFTC] regulations . . . . including any record of any correction or other amendment to such books and records, provided that, with respect to such books and records stored electronically, regulatory records shall also include:

(i) All data produced and stored electronically that describes, directly or indirectly, the characteristics of such books and records, including, without limitation, data that describes how, when, and, if relevant, by whom such electronically stored information was collected, created, accessed, modified, or formatted; and

(ii) Any data necessary to access, search, or display any such books and records.

  • Electronic regulatory records means all regulatory records other than regulatory records exclusively created and maintained by a records entity on paper.

The proposed amended Regulation 1.31 would require each records entity to establish, maintain and implement written policies and procedures reasonably designed to ensure that the records entity complies with its recordkeeping obligations.  Such policies are to provide for appropriate training of officers and personnel regarding their responsibility for ensuring compliance with recordkeeping obligations, as well as regular monitoring of such compliance.6

Unless otherwise specified in the Act or applicable CFTC regulations, the proposed amended Regulation 1.31 would require a records entity to keep regulatory records (other than oral communications) of any swap or related cash or forward transaction from the date the regulatory record was created until the termination, maturity, expiration, transfer, assignment, or novation date of the transaction and for a period of not less than five years after such date.  In contrast, a records entity that is required to retain oral communications would be required to keep such regulatory records for a period of not less than one year from the date of such communication.  Regulatory records other than those of any swap or related cash or forward transaction, or of any oral communication, would be required to be kept for a period of not less than five years from the date on which such records were created.  Moreover, records entities would be required to keep regulatory records exclusively created and maintained on paper readily accessible for no less than two years, but would be required to keep electronic regulatory records for the duration of the required recordkeeping period.7

Each records entity generally would be required under proposed amended Regulation 1.31 to retain regulatory records in a form and manner that ensures the authenticity and reliability of such regulatory records in accordance with the Act and applicable CFTC regulations.  Each records entity that maintains electronic regulatory records would be required to establish appropriate systems and controls to ensure the authenticity and reliability of such records, including, inter alia, systems that maintain the security, signature, chain of custody elements and data as necessary to ensure the authenticity of the information contained in such records and to monitor compliance with recordkeeping requirements, and systems that ensure the availability of such records in the event of an emergency or other disruption of the records entity's electronic record retention system.8

Proposed amended Regulation 1.31 would require a records entity, at its own expense, to produce or make accessible for inspection all regulatory records to any representative of the CFTC or United States Department of Justice.  A records entity would be required to produce regulatory records exclusively created and maintained on paper promptly upon a request by a CFTC representative.  A request from a CFTC representative for electronic regulatory records would be required to specify a "reasonable form and medium" in which the records entity must produce such records, and the records entity would be required to produce such records in the form and medium requested promptly following such a request.  A records entity may provide an original regulatory record for reproduction, which a CFTC representative may temporarily remove from such record entity's premises for this purpose but, in such a case, upon request, the CFTC representative would be required to issue to the records entity a receipt for such record.9

The comment period for the proposed amendments ends on March 20.

Footnotes

1 Recordkeeping, 82 Fed. Reg. 6,356 (Jan. 19, 2017).

2 The term "technology-neutral" is intended to mean that the regulation should withstand technological developments. See 82 Fed. Reg. at 6,358.

3 As then-CFTC Chairman Timothy Massad noted in his statement at the time the proposed amendments were issued, "[i]n this age where terabytes of storage easily fit in your pocket, our rules should not refer to microfiche or require paper records." 82 Fed. Reg. at 6,367.

4 Note, however, that the proposed amendments to Regulation 1.31 do not address requirements relating to "source code," which are addressed in the CFTC's proposed Regulation AT. For additional information on proposed Regulation AT, please click here.

5 82 Fed. Reg. at 6,365-66 (proposed Regulation 1.31(a)).

6 82 Fed. Reg. at 6,366 (proposed Regulation 1.31(b)).

7 Id. (proposed Regulation 1.31(c)).

8 Id. (proposed Regulation 1.31(d)).

9 Id. (proposed Regulation 1.31(e)).

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