CFTC Staff Provides Guidance on Auditor Independence Requirements Under FCM Customer Protection Rules

The CFTC’s Division of Swap Dealer and Intermediary Oversight (the “Division”) issued an interpretive letter regarding the auditor independence standards included in CFTC Regulation 1.16, specifically as it applies to auditors of futures commission merchants (“FCMs”).   As discussed in the November 12, 2013 Financial Services Alert, the CFTC adopted rule changes designed to enhance the protections for FCM customers and customer funds.  Among these protections is a requirement that a certified public accountant’s audit report of an FCM state whether the audit was conducted in accordance with the auditing standards adopted by the Public Company Accounting Oversight Board (the “PCAOB”).  The interpretive letter explains that Regulation 1.16 had been amended, in part, to be consistent with the auditor independence requirements of SEC Rule 17a-5 under the Securities Exchange Act of 1934 applicable to the audits of registered broker-dealers, but notes that the Regulation 1.16 is silent with respect to certain provisions of the SEC regime, such as those exempting auditors of non-issuer broker-dealers from partner rotation requirements and cooling-off periods for employment.   Responding to concerns regarding potential conflicting rules or interpretations applicable to firms dually registered as FCMs and broker-dealers, as well as concerns about potentially inconsistent treatment, the interpretive letter clarifies that if FCMs, firms dually registered as FCMs and broker-dealers, and their auditors comply with the auditor independence requirements in SEC Rule 17a-5, they will also be in compliance with CFTC Regulation 1.16. 

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

Topics:  Auditors, CFTC, FCMs, Futures, Securities Exchange Act

Published In: Finance & Banking Updates, Securities Updates

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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