U.S. Commodity Futures Trading Commission (CFTC) Commissioner Caroline D. Pham issued the following dissenting statement on the CFTC’s recent enforcement actions regarding Tradition SEF LLC, GFI Swaps Exchange, LLC and BGC Derivative Markets, L.P.:
“In a developing trend, the Commission has now brought four enforcement actions enshrining a new prescriptive approach to the CFTC’s longstanding Core Principles regulatory framework for registered entities such as futures exchanges and swap execution facilities (SEFs).[1] I am concerned that this is the first time that the CFTC has charged alleged violations of SEF Core Principle 14, which is high-level and sets forth a SEF’s system safeguard obligations to address operational risk, among other things. Deficiencies in systems and processes are not the same thing as failing to implement a program. The CFTC is bringing these enforcement actions despite the fact that SEF Core Principle 1 states that SEFs shall have reasonable discretion in implementing the Core Principles.
“Not only has the Commission taken a departure from our principles-based approach to regulation that has always defined the CFTC and is the linchpin of the Commodity Exchange Act, but the Commission has done so without fair notice to the public because these enforcement cases were rooted in SEF exams. If the CFTC is taking a more narrow approach to the Core Principles, there should first be a public notice-and-comment process. These cases also further highlight the need for written procedures and public criteria for enforcement referrals from other CFTC divisions, as I have previously proposed.[2]”
[1] See Dissenting Statement of Commissioner Caroline D. Pham on NFX Settlement Order (Aug. 29, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement082924.
[2] Statement of Commissioner Caroline D. Pham on Self-Reporting and Cooperation Credit in Enforcement Actions (Aug. 19, 2024), https://www.cftc.gov/PressRoom/SpeechesTestimony/phamstatement081924.
