The Commodity Futures Trading Commission (the “Commission” or “CFTC”) is proposing to provide an alternative to fingerprinting for purposes of evaluating the fitness of natural persons who are required to submit fingerprints under applicable CFTC and National Futures Association (“NFA”) registration regulations and who have not resided in the United States since reaching 18 years of age (the “Proposal”). 81 Fed. Reg. 1359 (January 12, 2016). Comments must be received on or before February 11, 2016.
Existing CFTC No-Action Relief
The Proposal builds upon existing CFTC staff no-action letters in which the CFTC staff responded to concerns raised by industry participants that the fingerprinting requirement is unduly burdensome for foreign natural persons.1 These letters provide an alternative to the fingerprinting requirement for natural person principals and associated persons (“APs”) of sponsoring firms who have not resided in the United States since reaching 18 years of age, subject to certain conditions. To rely on this relief, a sponsoring firm such as a futures commission merchant, introducing broker, commodity pool operator, commodity trading advisor, or swap dealer must submit a certification in lieu of a fingerprint card for a foreign natural person stating that: (i) a reasonable criminal history background check using a reputable commercial service has been conducted; (ii) the background check did not reveal any matters that constitute a statutory disqualification from registration under Sections 8a(2) or (3) of the Commodity Exchange Act (the “CEA”), other than those disclosed; and (iii) the sponsoring firm will maintain records documenting that the background check was performed and the results of such background check.
To codify the DSIO No-Action Letters and clarify and expand the relief provided thereunder in certain respects, the Commission is proposing to add a new sub-section (e) to the existing list of exemptions from the fingerprinting requirement in CFTC Rule 3.21. First, the Proposal broadens the availability of the alternative to fingerprinting to include certain natural persons connected to floor brokers and floor traders, as well as all other requirements to provide a fingerprint card under Part 3 of the CFTC’s rules. Second, where the DSIO No-Action Letters require that a “reasonable” criminal history background check using a “reputable” commercial service be performed, the Proposal does not use the terms “reasonable” or “reputable.” Instead, the Proposal requires that the background check be of a type that would reveal all matters listed under Sections 8a(2)(D) or 8a(3)(D), (E), or (H) of the CEA (which generally relate to criminal convictions) with respect to the foreign natural person. According to the CFTC, this standard is designed to be more objective than the corresponding criterion in the DSIO No-Action Letters in the interest of promoting greater market certainty but without jeopardizing the fitness of its registrants.
Third, the sponsoring firm would have to submit a certification with respect to the foreign natural person stating that the conditions of this exemption from fingerprinting have been satisfied, which must be signed by a duly authorized person. Note that the Proposal would require that the background check be completed not more than one calendar year prior to the date that the sponsoring firm submits the certification to NFA. Fourth, the sponsoring firm must maintain records documenting that the background check was completed and the results thereof in accordance with CFTC Rule 1.31. Finally, the Commission noted that, if adopted, the Proposal would supersede the DSIO No-Action Letters without prejudice to those who are relying on either of them and who have previously satisfied the requirements thereof.
The Commission is requesting comment on all aspects of the Proposal. Among other issues, the Commission is inviting comment on whether it should use a different standard to determine if an individual is eligible for the alternative to fingerprinting than the proposed standard (i.e., an individual who has not resided in the United States since reaching 18 years of age). The Commission is also requesting comment on whether the required background check should be completed within a different time period than no more than one calendar year prior to the date the related certification is submitted.