CFTC Releases Enforcement Advisory on Penalties, Monitors and Admissions

The Division of Enforcement of the U.S. Commodity Futures Trading Commission (CFTC) has released a new advisory aimed at providing guidance to enforcement staff on the Commission’s future approach towards enforcement. This approach has been revised in the past two years to achieve better accountability for regulatory breaches and prevent market misconduct altogether. A particular focus thereby lies on the prevention of recurring violations (recidivism).
#### The new advisory covers three key areas:
(1) Deterring misconduct through appropriate penalties: As noted above, the key objective of the CFTC’s enforcement policy is to prevent market misconduct to ensure market integrity and confidence in the U.S. financial market. Therefore, the Division is reevaluating how it determines civil monetary penalties (CMPs) to ensure that such penalties are sufficient and adequate to deter inappropriate conduct of supervised firms and individuals, which – by the way – may result in higher recommended penalties than in the past. The factors that the Division will take into consideration to determine CMPs include, but are not limited to the following:
– the type of violation committed;
– the frequency of violations;
– the time period between violations; and
– the remediation action taken by the supervised firm or entity.
(2) The use of monitors and consultants for remediation: In cases where the Division lacks confidence that an entity can remediate misconduct on its own, it will require the entity to engage a third-party approved by the Division for assistance. Monitors will be recommended in cases of significant compliance failures, while consultants will be recommended in less severe cases. While monitors will have to be approved by the Commission, consultants do not. In performing their tasks, monitors will have to perform the following tasks:
– evaluating the adequacy of the entity’s policies, procedures, and controls in order to detect, rectify, and prevent future wrongdoing;
– formulating precise suggestions to resolve concerns uncovered during the evaluation; and
– assessing the adequacy of the entity’s improvements to its policies, procedures, and controls for the implementation of the monitor’s recommendations and gauging the long-term effectiveness of these enhancements.
(3) Admissions for accountability and deterrence: No-admit, no-deny resolutions of violations are no longer the default to determine the resolution of violations and thus the way forward on investigations. Instead, the Division will discuss with respondents or defendants whether admissions are appropriate in each case, considering various factors such as
– whether the respondent is admitting in a parallel criminal investigation to serious misconduct through a guilty plea or other means, particularly if it has caused significant harm to investors and markets;
– whether the CFTC’s investigation provides clear and conclusive evidence of the misconduct, such as the respondent’s admission or compelling documentary evidence; or
– the extent to which the respondent cooperates with the Commission.