Public Statements & Remarks

Statement of Commissioner Caroline D. Pham on Non-U.S. Swap Dealer Annual Compliance Reports

December 02, 2022

I appreciate the Market Participants Division issuing CFTC Staff Letter 22-17 to provide further guidance on the Division’s expectations for non-U.S. swap dealers that elect substituted compliance with CFTC Rule 3.3[1] and file the home regulator annual compliance report (“home regulator report”) with the CFTC in lieu of an annual chief compliance officer report (“Annual CCO Report”) that adheres to CFTC Rule 3.3(e)[2] requirements. 

The Division states in its staff advisory that in order to rely upon substituted compliance, non-U.S. swap dealers must submit to the CFTC the same annual compliance report (translated into English) that is submitted to the home regulator.  The report must be full and complete without any redactions.

In my view, there are two practical issues that need to be addressed. 

First, I believe that the requirement to submit the home regulator report is limited in scope to the swap dealing activity of the non-U.S. swap dealer pursuant to section 2 of the Dodd-Frank Act[3] and section 4s of the Commodity Exchange Act[4].  Accordingly, firms would not have to submit the home regulator report relating to non-swap dealing activity (e.g., retail consumer lending).  This clarification is important because many non-U.S. swap dealers are universal or commercial banks that offer products or services that are unrelated to markets sales and trading and do not involve derivatives transactions.  I believe it would be reasonable for such universal or commercial banks to submit only the sections of a home regulator report that relate to the swap dealing activity of the non-U.S. swap dealer.  Requiring the full and complete, unredacted legal entity report that includes non-swap dealing activity would seem to exceed the CFTC’s authority, although firms could choose to voluntarily submit the entire report.  However, if firms rely upon a group-level policy, program, or framework to comply with CFTC swap dealer rules, such as an enterprise-wide risk management program, then firms should submit the sections of the home regulator report relating to such policy, program, or framework.  Firms are encouraged to discuss this approach with the Division in a proactive manner prior to filing this year’s report.

Second, as the Division notes in its advisory, many jurisdictions have privacy or blocking laws that may prohibit sharing certain information in a home regulator report with the CFTC.  Non-U.S. swap dealers should also discuss any such limitations with the Division prior to making any redactions.

I believe that a best practice would be for non-U.S. swap dealers that elect substituted compliance with CFTC Rule 3.3 to include a cover letter with their filing of the home regulator report that includes each CFTC Rule 3.3(e) Annual CCO Report requirement aligned to a description of equivalent home jurisdiction requirements and the relevant portion of the home regulator report.  This may reduce the likelihood that the Division will find the home regulator report filing under substituted compliance to be deficient.

Firms may determine, after reviewing the staff advisory and this statement, and discussions with the Division, that it is preferable to instead prepare an Annual CCO Report that adheres to CFTC Rule 3.3(e) for filing with the CFTC, and to not submit the home regulator report.

[1] 17 C.F.R. 3.3.

[2] 17 C.F.R. 3.3(e).

[3] 12 U.S.C. § 5301(12)(C).

[4] 7 U.S.C. § 6s.