CFTC Commissioner Dan M. Berkovitz urged the CFTC to revisit exemptions to certain registration and compliance regulations that were extended to family offices after the collapse of Archegos Capital Management.
Specifically, Mr. Berkovitz found the November 2019 exemption for family offices from providing notice that they are exempt from CFTC registration requirements to have "no rational justification." Mr. Berkovitz explained that the exemption, which imposes minimal notice requirements with relatively trivial costs, means that the CFTC, "unaware of the very existence of these large commodity pools, is hampered in its ability to oversee their activities, and does not even know whom to contact should issues arise."
Mr. Berkovitz also found the July 2020 exemption for persons in family offices from statutory disqualification to be equally unreasonable as it provides "financial market miscreants" with free range to operate in a family office.
Commentary Dorothy Mehta
The immediate reaction of the regulators to call for regulation of family offices and treat these private entities similar to fund managers is understandable. However, like the regulation of fund managers, the regulation of family offices is not a one-size-fits-all situation. The vast (stress on vast) majority of family offices in the U.S. are not taking such outsized risks as Archegos with the use of leverage and multiple prime brokers on the institutional side of the bank. Rather, a typical family office's goal is preservation of wealth, which generally means an unlevered portfolio with a private bank. If and when the regulators determine that the rules need to be re-written for family offices, they should look to the play book from Dodd Frank and focus on risk.
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