Written by: Ansley Schrimpf, Mayer Brown
This week the Commodity Futures Trading Commission’s (“CFTC”) Division of Swap Dealer and Intermediary Oversight (“DSIO”) issued interpretive guidance to clarify requirements for introducing brokers (“IB”) with respect to the Customer Identification Program (“CIP”) [1] and Beneficial Ownership (“BO”) [2] rules. [3] DSIO, in coordination with the Financial Crimes Enforcement Network (“FinCEN”), is granting relief from CIP and BO rules to IBs that do not “introduce” customers to a futures commission merchant (“FCM”).
Background
The CFTC and FinCEN have authority to administer and enforce compliance with CIP and BO requirements under the Bank Secrecy Act. FinCEN requires financial institutions, including IBs, to establish anti-money laundering (“AML”) programs and sets forth minimum requirements. IBs are required to establish AML programs that address the CIP and BO rules.
Guidance
Although traditional IBs introduce their customers to FCMs, there are registered IBs, including many voice brokers, that may not have any direct and formal relationship with an FCM that carries a transacting party’s accounts. Where no such relationship exists, a broker obtains a license to directly enter orders on a designated contract market on behalf of a transacting party. The transacting party gives permission for the IB to enter orders on its behalf, but the IB does not receive or have access to the transacting party’s records, account statements, or invoices.
If an IB operates in a manner that it does not introduce an account to an FCM, it has neither a customer nor account for the purpose of the CIP or BO rules. Therefore, DSIO clarifies that such IBs are not required to perform CIP measures or comply with BO rules.
Questions?
For more information about the CFTC’s guidance, please contact Matt Kluchenek ([email protected]) or Ansley Schrimpf ([email protected]) at Mayer Brown.
[1] 31 CFR § 1026.220.
[2] 31 CFR § 1010.230.
[3] CFTC Staff Letter 19-18 (July 22, 2019) available here