The Commodity Futures Trading Commission (“CFTC”)’s Division of Swap Dealer and Intermediary Oversight (“DSIO”) has issued an exemptive letter (the “Letter”) allowing a commodity pool operator (“CPO”) to maintain required books and records at any third party recordkeeper, even if not currently enumerated in the list of permitted third party recordkeepers in CFTC Regulations 4.7(b)(4) and 4.23(c), in lieu of maintaining required books and records at the CPO’s main business office, subject to certain conditions described below.1 In this regard, last year the CFTC amended the “main business office” recordkeeping requirement applicable to CPOs in Regulations 4.7(b)(4) and 4.23 to permit a CPO to maintain its books and records at one or more of the following: “the pool’s administrator, distributor or custodian, or a bank or registered broker or dealer acting in a similar capacity with respect to the pool” in accordance with certain conditions.2 By issuing the Letter, DSIO is thus expanding the range of permitted third party recordkeepers eligible to be used by a CPO.
Pursuant to the Letter, a CPO may use any third party recordkeeper provided that: (i) the CPO’s timely access to such records is maintained, such that the CPO will satisfy the obligations of applicable CFTC regulations, including with respect to providing such records for inspection; and (ii) the CPO files the statements with the National Futures Association (“NFA”) as required pursuant to Regulations 4.7(b)(5) or 4.23(c) as applicable.3 DSIO reiterated that the CPO remains responsible for ensuring that all required books and records are kept in accordance with applicable CFTC regulations, and for producing them upon request, within the prescribed time frames. In DSIO’s view, these obligations remain with the CPO, regardless of any non-compliance or non-performance by a third party recordkeeper to whom the CPO has delegated its recordkeeping responsibility.
In connection with issuing this relief, DSIO stated that many parties have expressed concerns that the “main business office” recordkeeping requirement in the CFTC’s Part 4 rules applicable to CPOs, as well as other aspects of current CFTC recordkeeping requirements in Regulation 1.31, which are incorporated therein by reference, are no longer consistent with modern data management practices and that DSIO intends to review the requirements of Regulation 1.31 and their applicability to current recordkeeping practices. It should be noted that to date, the CFTC has not amended the parallel “main business office” recordkeeping requirements applicable to commodity trading advisors (each, a “CTA”) in Regulations 4.7(c)(2) and 4.33, which remain in effect, and the Letter does not affect the CFTC’s recordkeeping requirements for CTAs.