Futures and Derivatives Law Report May 2022 | Volume 42 | Issue 5
essential to the Commission ’ s efforts to promote the integrity , resilience , and vibrancy of the U . S . derivatives markets through sound regulation .” 90 With the pandemic having caused most companies to go remote over the past two years , many companies struggled to execute their compliance duties . This case serves as a stark reminder that regulatory compliance is a clear-cut issue for the CFTC and market participants can expect the CFTC to continue to closely examine registrants for strict compliance .
As noted above , the Division of Enforcement will continue to be proactive in reviewing the dealings of swaps market participants to ensure their full compliance with the CFTC ’ s rules and regulations for swaps . As old rules are reviewed and revised , the Division will quickly follow up to ensure companies have adjusted their internal systems and controls accordingly to stay in compliance . Given the ease with which these types of regulatory enforcement cases can be brought , the Division will have little patience for any excuses or delays in compliance .
D . REGULATORY VIOLATIONS
Prosecuting regulatory violations continues to occupy an important share of the Division of Enforcement ’ s case load . Common violations include failure to register as an appropriate category of market participant ( such as an FCM , a Commodity Pool Operator , or a Commodity Trading Advisor ) and failures to maintain adequate reporting systems . During FY 2021 , the Commission brought approximately 26 actions alleging registration failures , nine actions alleging supervision failures , one action alleging recordkeeping failures , and nine cases alleging reporting failures . The largest portion of the alleged regulatory violations brought in FY 2021 , approximately 21 actions , occurred in the context of binary options . 91
Cases involving regulatory violations are a regular feature in the Division ’ s enforcement program . This is due in part to the relative ease in proving these violations compared to other , more complex ones , such as manipulation cases : regulatory cases are per se violations and do not demand proof of intent . More importantly , from the Division ’ s perspective , they underscore the crucial role of proper systems and controls within companies and emphasize the importance of both maintaining a strong compliance department and keeping up with regulatory requirements . These seemingly routine enforcement actions often carry significant penalties and compliance mandates that require ongoing improvements to systems and controls that must be reported back to the Division , thereby extending the Division ’ s close review of internal operations . The ongoing emphasis in bringing these types of cases provides an impetus to market participants to review current policies and procedures and ensure that they are in full compliance with applicable regulations , based on current business models and personnel .
There is a concern , however , that regulatory violations can impose undue sanctions on companies even when they self-disclose and remediate . In a self-disclosure case issued just days after the end of FY 2021 , the CFTC ordered a $ 450,000 penalty against a derivatives clearing organization organized and based out of the United Kingdom for failing to obtain written acknowledgement letters from a depository for six of 136 accounts , in violation of consumer protection regulations . 92 The organization had closed all six
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