During the course of 2019 and 2020, the Commodity Futures Trading Commission and the National Futures Association (NFA, the self-regulatory organization for the U.S. futures and swaps industry) have been hard at work amending rules and reporting requirements applicable to the buy-side of the derivatives market, as well as providing relief for industry members adversely affected by the COVID-19 pandemic. As 2020 draws to a close and 2021 begins, the compliance dates for many of these changes are approaching.

This Dechert Newsflash provides a brief description of some of these changes and requirements, and serves as a reminder of the need for compliance. However, it is not intended to provide a complete discussion of all the rule and report amendments or new compliance requirements that may be applicable to registered and exempt commodity pool operators (CPOs) and commodity trading advisors (CTAs).

• Exempt CPO Statutory Disqualification Prohibition Goes Into Effect. In June 2020, the CFTC amended Regulation 4.13 to add a new requirement that any person filing with the NFA a notice of exemption from registration as a CPO under Regulation 4.13(a)(1), (2), (3) or (5), or annually affirming such an exemption, must make a specified representation. The representation will provide that neither the person, nor any of the person’s principals, has in their background a statutory disqualification that would require disclosure under Section 8a(2) of the Commodity Exchange Act if such person sought registration (unless such disqualification arises from a matter disclosed in connection with a previous application for registration, where such registration was granted).
  
  For new claims of exemption from CPO registration, the effective date of this rulemaking was September 8, 2020. CPOs currently relying on a Regulation 4.13 exemption will need to come into compliance when they next file a notice of exemption for the 2021 filing cycle, by March 1, 2021, which is the end of the annual reaffirmation period for CPOs operating under the Regulation 4.13 exemptions. Given that the steps to come into compliance may be time-consuming, exempt CPOs should begin the process of identifying their principals and conducting diligence to confirm the lack of Section 8a(2) statutory disqualifications for the firm and its principals.¹

• Swap Proficiency Requirements Deadline Approaches for Associated Persons of Swap Firms. In March 2019, the NFA announced a new requirement applicable to associated persons of NFA members that are designated in the NFA’s system as swap firms (swap APs). Going forward, swap APs will be required to satisfy the NFA’s Swaps Proficiency Requirements. For swap APs of NFA members that are registered as CPOs and CTAs, this involves the swap APs completing a “Short Track” proficiency requirement, which involves proceeding through learning components and quizzes on their own computers and is estimated to take four hours. The deadline for swap APs to complete the NFA Swap Proficiency Requirements is January 31, 2021.²

• Changes to CFTC Form CPO-PQR Take Effect. On October 6, 2020, the CFTC adopted its first comprehensive, substantive amendments to its systemic risk report, CFTC Form CPO-PQR, since the form was adopted in 2012. The CFTC finalized the changes largely as it had proposed them in April 2020.³ These changes:
• Eliminate the pool-specific reporting requirements in existing Schedules B and C of CFTC Form CPO-PQR, except for the pool schedule of investments (question 6 of Schedule B);
• Amend the information requested in existing Schedule A of CFTC Form CPO-PQR to request Legal Entity Identifiers (LEIs) for CPOs and their operated pools (if LEIs have been obtained);
• Eliminate from Schedule A questions regarding pool auditors and marketers; and
• Eliminate substituted compliance with SEC Form PF for Large CPO filers.

All reporting CPOs will be required to file the revised CFTC Form CPO-PQR with respect to the pools they operate in their registered CPO capacity for the first calendar quarter of 2021 ending on March 31, 2021. The deadline for filing that report is 60 days after the quarter-end, or May 30, 2021.

• Updated NFA Annual Questionnaire is Currently Effective. In September 2020, the NFA announced that it had overhauled the electronic questionnaires that NFA members are required to complete on an annual basis and keep up-to-date throughout the year. Going forward, NFA members that access the NFA system on or after October 2, 2020 are required to fill out the redesigned annual questionnaire, even if the member previously began completing an annual questionnaire in the old system. The NFA held a webinar on this topic in late September 2020, a recording and written transcript of which are available on the NFA website.⁴ The NFA also has made available a user guide and template of the questionnaire with all help texts expanded.⁵

• CFTC and NFA COVID-19 Fingerprinting Relief has Ended. In April 2020, the CFTC Division of Swap Dealer and Intermediary Oversight (DSIO) provided market-wide relief from the requirement that natural person principal and AP applicants for listing or registration with the CFTC/NFA submit fingerprint cards as part of their application. This relief was in response to challenges presented for obtaining fingerprinting services during the height of the first wave of the COVID-19 pandemic.⁶ In July 2020, DSIO extended its original relief to the earlier of September 30, 2020 or the date the NFA notifies the public that it has resumed processing fingerprints.⁷ On September 30, 2020, the relief expired. On October 6, 2020, the NFA announced that any persons still finding it impossible or inordinately difficult to obtain fingerprints should contact the NFA staff.⁸

Footnotes

1) For further information regarding this rule amendment and the compliance obligations for exempt CPOs, please refer to Dechert OnPoint, CFTC Finalizes New Requirement Applying Statutory Disqualification Prohibitions to CPOs Exempt under CFTC Regulation 4.13 – Exempt CPOs Must Take Action in 2020.

2) For further information regarding the NFA Swap Proficiency Requirements, please refer to NFA Notice to Members No. I-19-09 (Mar. 25, 2019) and NFA FAQs.

3) For further information regarding the proposal, please refer to Dechert OnPoint, CFTC Proposes Changes to Form CPO-PQR.

4) For further information about the redesign, please refer to NFA Notice to Members I-20-33 (Sept. 17, 2020). The archived webinar and a copy of the transcript of the NFA webinar are available on the NFA website.

5) The annual questionnaire user guide and annual questionniare template are available on the NFA website.

6) CFTC No-Action Letter No. 20-16 (Apr. 24, 2020).

7) CFTC No-Action Letter No. 20-20 (July 14, 2020).

8) See Coronavirus Update – Expiration of Temporary Relief from Fingerprinting Requirements, NFA Notice to Members I-20-37 (Oct. 6, 2020).