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The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") issued a staff advisory that clarified the necessary elements of reporting line requirements for Chief Compliance Officers ("CCOs") under CFTC Rule 3.3. It also outlined supervisory relationships that CCOs may maintain with senior management other than the board or the senior officer under certain circumstances. The staff advisory was a response to requests for guidance regarding the "practical implementation" of CCO reporting line requirements.
The DSIO clarified that it does not expect CCOs to seek direction from the board or a senior officer during the resolution of every compliance matter, and that it is sufficient for members of senior management (whose positions are below those of board members or senior officers) who are involved in the daily activities of registrants more directly to review compliance issues that arise "in the normal course."
The DSIO offered the following clarifications and directives:
- CFTC Rules 3.3(a)(1) and (2) require either the board or the senior officer to (i) appoint the CCO, (ii) approve the CCO's compensation, (iii) meet with the CCO at least annually and as the CCO elects, and (iv) make any removal decisions regarding the CCO.
- A CCO's independence is likely to facilitate more effective compliance because "an independent CCO is more likely to: (i) [q]uestion business line decisions, (ii) speak out on non-compliance issues and raise them with senior management and the board, and (iii) have stature within the firm to successfully institute a culture of compliance."
- Additional supervisory reporting and consultative relationships at the CCO's discretion may be consistent with Rule 3.3 requirements, but registrants must ensure that additional members of supervisory senior management have relevant experience and enough independence to address compliance issues raised by the CCO.
- An additional reporting line for senior swap traders or the heads of swap-trading desks could raise concerns about conflicts of interest and potentially undermine the independence of the CCO, in contravention of CFTC Rule 3.3.
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