CFTC Issues New Advisory on Self-Reporting, Cooperation, & Remediation

Key Takeaways

• Clear Self-Reporting Guidelines: The CFTC has established a three-tier scale for evaluating self-reporting, encouraging timely, voluntary, and complete disclosures.
• Cooperation Evaluation: The agency will assess cooperation on a four-tier scale, considering efforts to prevent future violations as part of the overall evaluation.
• Mitigation Credit Matrix: The advisory introduces a matrix that offers potential penalty reductions based on self-reporting and cooperation, ranging from 0% to 55%.
• Flexibility in Penalty Determination: While the matrix sets presumptive credits, the CFTC can adjust credits based on case specifics.

Deep Dive

The Commodity Futures Trading Commission (CFTC) has released an advisory designed to clarify its approach toward self-reporting, cooperation, and remediation in its enforcement actions. This new framework aims to provide clear guidelines for companies and individuals seeking to mitigate potential penalties through voluntary disclosures, cooperation with the agency, and efforts to remediate violations.

The advisory also introduces the CFTC’s first-ever Mitigation Credit Matrix, which establishes a structured approach to determining the potential reduction in civil penalties based on the level of self-reporting and cooperation demonstrated by a firm or individual.

The CFTC’s Division of Enforcement has outlined a set of criteria for evaluating self-reporting, cooperation, and remediation. The framework provides a clear structure to help businesses understand how their actions during an investigation can influence the outcome of enforcement proceedings.

1. Self-Reporting: The CFTC will assess self-reporting on a three-tier scale: No Self-Report, Satisfactory Self-Report, and Exemplary Self-Report. To receive full credit, reports must be voluntary, complete, and made in a timely manner. The advisory also includes a “safe harbor” provision, allowing firms to correct any inaccuracies in their self-reports without facing negative consequences, as long as the corrections are made promptly after the error is discovered.
2. Cooperation and Remediation: The agency will evaluate cooperation on a four-tier scale, ranging from No Cooperation to Exemplary Cooperation. Remediation efforts—such as steps taken to prevent future violations—are considered a part of the cooperation evaluation. In some cases, the CFTC may recommend the appointment of a compliance monitor to ensure that remediation efforts are properly implemented.

An important component of the advisory is the introduction of a Mitigation Credit Matrix. This matrix outlines the presumptive mitigation credits that may be applied to a civil monetary penalty based on the degree of self-reporting and cooperation by the involved party. The matrix ranges from 0% credit for no self-report and no cooperation to a maximum of 55% credit for exemplary self-reporting and cooperation.

The matrix serves as a starting point, with the CFTC retaining discretion to adjust the mitigation credit based on the unique facts of each case. This flexibility allows for case-specific considerations, ensuring that penalties are appropriate for the circumstances.

CFTC’s Intentions and Goals

The CFTC has emphasized that the goal of this advisory is to provide businesses with clearer expectations and incentives to report violations and cooperate with investigations. By offering mitigation credits, the agency aims to expedite resolutions and allocate enforcement resources more effectively. This approach is designed to reward proactive compliance while allowing the CFTC to focus more resources on higher-priority cases, such as market manipulation and fraud.

Division of Enforcement Director Brian Young commented, “The goal is to promote transparency and cooperation, which can lead to more efficient investigations and better outcomes.”

The CFTC’s advisory seeks to provide businesses with guidance on how to approach self-reporting and cooperation, while also ensuring that penalties are applied fairly and consistently. By introducing the Mitigation Credit Matrix, the CFTC is attempting to offer businesses a clear incentive to engage with enforcement processes proactively, which potentially could lead to quicker resolutions and reduced penalties.

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