The CFTC unanimously approved a final rule amendment to prevent certain bad actors from seeking exemptions from registration as CPOs under CFTC Rule 4.13 ("Exemption from Registration as a Commodity Pool Operator").
The final rule will require any person seeking such an exemption to represent that neither they nor their principals are subject to any of the statutory disqualifications under CEA Section 8a(2) ("Registration of Commodity Dealers and Associated Persons; Regulation of Registered Entities"). A person is carved out from this requirement if (i) any matters for which they were subject to such statutory disqualification were previously disclosed in an application for registration with the CFTC and (ii) they were granted registration in connection with such application.
The final rule amendments were first proposed in 2018 as part of a larger rulemaking intended to simplify regulatory obligations for CPOs and CTAs (see previous coverage). Consistent with the proposed rule, the statutory disqualification requirement is not applicable to the CPOs of family offices. However, unlike the proposed rule, the final rule does not include violations enumerated in CEA section 8a(3) as grounds for statutory disqualification.
CFTC Chair Heath P. Tarbert highlighted that the rule closed the loophole by which bad actors who are disqualified from registration with the CFTC are nevertheless able to act as exempt CPOs.
CFTC Commissioner Dan M. Berkovitz criticized the final rule's "glaring deficiency" in not requiring CPOs of family offices to meet the same standards of conduct as other exempt CPOs. He noted that, in conjunction with recent amendments to CFTC Rules 4.13 and 4.14 (see previous coverage), "CPOs of family offices are exempt from registration, exempt from providing notice that they are using an exemption, and exempt from the statutory disqualifications that generally apply to all other CPOs." Asserting that the CFTC is thus "uniquely unaware of the activities and integrity of these entities," Commissioner Berkovitz had CFTC staff request information from CPOs of family offices to determine how many are subject to statutory disqualification under Section 8a(2).
The final rule will go into effect 60 days following its publication in the Federal Register. A person currently relying on an exemption from CPO registration under Regulation 4.13 will be required to comply with the final rule when filing a notice of exemption from CPO registration for the upcoming March 1, 2021 deadline. A person claiming an exemption from CPO registration under Regulation 4.13 for the first time will be required to comply with the final rule when filing an initial notice of exemption.
Primary Sources
- CFTC Final Rule: Amendments to Registration and Compliance Requirements for Commodity Pool Operators and Commodity Trading Advisors - Prohibiting Exemptions under Regulation 4.13 on Behalf of Persons Subject to Certain Statutory Disqualifications
- CFTC Statement, Heath P. Tarbert: Statement of Chair Heath P. Tarbert in Support of Final Rule Preventing Bad Actors from Relying on CPO Exemptions
- CFTC Statement, Brian Quintenz: Statement of Support by Commissioner Brian Quintenz regarding Amendments Prohibiting CPO Exemptions under Regulation 4.13 on Behalf of Persons Subject to Certain Statutory Disqualifications - Final Rule
- CFTC Statement, Rostin Behnam: Statement of Commissioner Rostin Behnam regarding Amendments to Registration and Compliance Requirements for CPOs and CTAs
- CFTC Statement, Dawn D. Stump: Statement of Commissioner Dawn D. Stump regarding Final Rule Prohibiting Exemptions under Rule 4.13 on Behalf of Persons with Certain Statutory Disqualifications
- CFTC Statement, Dan M. Berkovitz: Statement of Commissioner Dan M. Berkovitz regarding Prohibiting Exemptions from Commodity Pool Operator Registration for Persons Subject to Certain Statutory Disqualifications
- CFTC to Hold an Open Commission Meeting on June 4, 2020
Originally published 04 June 2020
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