CFTC approves final rule closing loophole for bad actors seeking registration exemptions - 08 June 2020

At an open meeting of the CFTC, the full Commission unanimously approved a final rule relating to registration and compliance requirements for CPO’s and CTA’s prohibiting exemptions for those persons subject to certain statutory disqualifications.

At a recent Commodity Futures Trading Commission open meeting held via conference call in accordance COVID-19 social distance protocols, the CFTC voted 5-0 to approve a final rule amendment to Regulation 4.13 which prohibits persons from seeking to claim a Commodity Pool Operator (CPO) registration exemption who have, or whose principals have, incurred any of the relevant statutory disqualifications listed in the CEA.

Certification required. The final rule generally prohibits persons who have, or whose principals have, in their backgrounds any of the statutory disqualifications listed in section 8a(2) of the CEA from seeking to claim a CPO registration exemption under the applicable regulation. The disqualifying conduct includes the most serious types of financial crimes, such as embezzlement, theft, extortion, fraud, misappropriation, forgery, counterfeiting and bribery.

Specifically, the final rule will require any person filing a notice claiming an exemption to represent that, subject to limited exceptions, neither the claimant nor any of its principals has in their background a CEA section 8a(2) disqualification that would require disclosure, if the claimant sought registration with the CFTC. During the staff presentation at the meeting, Division of Swap Dealer and Intermediary Oversight (DSIO) Special Counsel Elizabeth Groover indicated that a party with a statutory disqualification would still have the right to seek exemptive relief with the Commission requesting that prohibition under the amended regulation would not apply. The final rule will become effective 60 days after publication in the Federal Register.

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