During the course of an investigation, the CFTC’s Division of Enforcement (Division) may evaluate whether a company’s compliance program complies with applicable CFTC regulations or whether a compliance program is sufficiently robust to warrant a reduction in civil monetary penalties associated with a violation of the Commodity Exchange Act or CFTC regulation. Although the Division’s evaluation of a compliance program remains a subjective endeavor, the Division has published guidance with the factors the Division considers when evaluating a compliance program.
Typically, the Division’s evaluation of a compliance program will take place during the course of an investigation into a potential violation of the Commodity Exchange Act or CFTC regulation. When evaluating a compliance program during an investigation, the Division assesses whether the program was reasonably designed and implemented to achieve three goals:
- Preventing the underlying misconduct.For this factor, the Division’s review of a compliance program assesses whether the company had written policies and procedures in place during the period of the misconduct; conducted training of staff, supervisors, and compliance personnel; cured previously identified deficiencies; provided adequate resources and funding for compliance; and whether there was sufficient independence between the business and compliance functions.
- Detecting the misconduct. For this factor, the Division’s review of a compliance program assesses whether the relevant misconduct was identified through compliance mechanisms; the presence of internal surveillance and monitoring efforts; and the use of internal reporting systems and handling of complaints.
- Remediating the misconduct.For this factor, the Division’s review of a compliance program assesses whether the company undertook timely, effective action to address the impact of potential misconduct; applied appropriate discipline for the individual(s) directly or indirectly responsible for the misconduct; and identified and remediated any deficiencies that may have contributed to a failure to prevent or quickly detect the misconduct.
The above assessment of factors does not follow a one-size-fits-all approach because the Division takes into consideration “the specific entity involved, the entity’s role in the market, and the potential market or customer impact of the underlying misconduct.” Furthermore, the Division may also consult with subject matter experts in other CFTC Divisions such as the CFTC’s Division of Market Oversight or the Market Participants Division. For a more detailed summary of how the Division assess a compliance program, please click here to review Willkie’s client memorandum on this topic.