CFTC Issues Relief for Family Offices


A family office is, generally, a professional organization that is wholly-owned by clients in a family and is exclusively controlled (directly or indirectly) by one or more members of a family and/or entities controlled by a family.  Typically, a family office structure is employed when one or more direct members of a family create substantial wealth, and share that wealth in whole or in part with other members of that family, either through direct transfer, inheritance, or similar means.  The family office is then used to provide personalized services to that family, including advice regarding issues of tax, estate planning, investment, and charitable giving.
Enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) created regulatory uncertainty for family offices.  Did family offices need to register with the Securities and Exchange Commission (“SEC”) as investment advisors and with the Commodity Futures Trading Commission (“CFTC”) as commodity pool operators (“CPO’s”)?
Section 409 of Dodd-Frank created an exemption from SEC registration for family offices and directed the SEC to develop regulations setting forth the parameters of a qualifying family office.  These regulations were issued on June 22, 2011.
Dodd-Frank did not provide a similar exemption for family offices from CPO registration with the CFTC.  Moreover, in February 2012, the CFTC rescinded its Rule 4.13(a)(4) exemption which many family offices had utilized to avoid CPO registration.  This action left family offices scrambling to find alternate exemptions by the end of 2012, when rescission of the Rule 4.13(a)(4) exemption becomes fully effective.
Fortunately, on November 29, 2012, the Division of Swap Dealer and Intermediary Oversight (“Division”) of the CFTC issued a no-action letter which stated that the Division would not recommend that the CFTC take an enforcement action against a family office for failure to register as a CPO if the family office meets the requirements of the SEC’s family office regulation.
In order to qualify for the exemption, a family office must claim the exemption by filing electronically prior to December 31, 2012.  Additionally, it must confirm that it is a family office within the meaning of the SEC’s rule prior to March 31, 2012.
Should you have any questions concerning the CFTC’s no-action position, please contact any member of Miller & Martin’s Investment Management Practice Group.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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