The US Commodity Futures Trading Commission recently issued more no-action letters in response to the coronavirus (COVID-19) pandemic, providing relief from capital requirements and fingerprint requirements.
Since the start of state-issued shelter-in-place orders in connection with COVID-19, the US Commodity Futures Trading Commission (CFTC) staff has issued no-action letters to provide relief from regulatory requirements to market participants and CFTC registrants. The CFTC has most recently issued relief from capital requirements to futures commission merchants (FCMs) and introducing brokers (IBs), in response to a request made by the Futures Industry Association and National Introducing Brokers Association, and relief from fingerprint requirements to natural persons who are principals or associated persons (APs), in response to a request made by the National Futures Association (NFA).
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27, 2020, provides emergency assistance and healthcare response for individuals, families, and businesses affected by the COVID-19 pandemic. The CARES Act establishes a $2.2 trillion program designed to provide relief to those who have been adversely impacted by COVID-19 and the Paycheck Protection Program (PPP) aimed to provide relief for small businesses.
Net Capital Relief
The CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued no-action relief to FCMs and IBs that receive PPP “covered loans” so that when they compute their net capital under CFTC Regulation 1.17, they may add back to their capital the eligible “forgivable expense amount” (certain costs incurred and payments made during the eight-week period beginning on the date of the origination of the loan, such as payroll expenses).
An FCM or IB may add back to their capital the forgivable expense amount provided that all of the following conditions are satisfied:
FINRA’s April 2 FAQ permits small firms to add back to net capital the amount of any accrued and unpaid annual assessment fees due to FINRA—reported on line 3525 (Other (deductions) or allowed credits) of the firm’s FOCUS report—until September 1, 2020. DSIO’s relief allows FCMs and IBs that are SEC-registered broker-dealers that qualify as small firms to take advantage of FINRA’s guidance until September 1, 2020.
NFA has suspended its applicant fingerprinting service and DSIO has provided relief from the fingerprint requirement in light of concerns regarding the spread of COVID-19 and federal, state, and local government measures to restrict the movement of, and contact among, individuals that have made it difficult for natural persons seeking to be listed as principals or registered as APs of CFTC registrants to comply with the fingerprint requirement in CFTC Regulations 3.10(a)(2) (for natural person principals) and 3.12(c)(3) (for APs).
Instead of submitting fingerprint cards to NFA, DSIO will permit the sponsoring firm of the principal or AP applicant to perform a criminal history background check of the applicant (similar to the relief available to non-US persons under CFTC Regulation 3.21(e)).
The relief is available until July 23, 2020 or such earlier date as NFA notifies the public that it has resumed the processing of fingerprints.
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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Michael M. Philipp
Katherine Dobson Buckley
Thomas V. D’Ambrosio