United States: CFTC Seeks to Refresh Swap Dealer and FCM Risk Management Program Requirements

By: Clifford C. Histed, Cheryl L. Isaac and Christine Mikhael

On July 18, 2023, the Commodity Futures Trading Commission (“CFTC”) published in the Federal Register an advanced notice of proposed rulemaking (“ANPRM”) on Risk Management Program (“RMP”) requirements for swap dealers (“SDs”), major swap participants (“MSPs”) and futures commission merchants (“FCMs”).  After initially adopting its RMP requirements for SDs and MSPs (CFTC Regulation 23.600) and FCMs (CFTC Regulation 1.11) in 2012, the CFTC now seeks to refresh certain aspects in light of feedback it has received on market participants’ confusion and lack of uniformity on their RMP obligations and filings. In particular, the CFTC identified the impetus for issuing the ANPRM as being:

  • SD concerns regarding who is properly designated as “senior management” under the current rules, as well as issues related to the reporting lines within the risk management unit;
  • Significant variance between SD and FCM quarterly risk exposure reports (“RERs”), including how SDs and FCMs define the enumerated areas of risk;
  • Inefficiencies with respect to the RER requirements, including neither a clear format nor exact filing schedule prescribed by the current regulations; and
  • Various technological innovations that have developed since the CFTC first promulgated such requirements.

The ANPRM requests public comment on different aspects of the SD and FCM risk management programs: (1) governance, (2) categories of enumerated risks, (3) periodic risk exposure reporting, (4) segregation of customer funds and safeguarding of counterparty collateral, and (5) potential risk posed by affiliates, lines of business, and all other trading activity. Among other things, the ANPRM seeks feedback on whether it should impose qualification standards for risk management unit personnel, whether it should add definitions to each of the current enumerated risks, and whether it should address the content, timing and format of RERs.

Responses to the CFTC’s request for comments are due on September 18, 2023.  Please feel free to reach out to any member of the K&L Gates derivatives team, including the listed authors, with any questions.

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