On August 28, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued an Interpretation of CFTC Regulation 30.7(c) that permits a futures commission merchant (FCM) to deposit Regulation 30.7 secured amount funds into deposit accounts maintained by deposit-taking banks licensed in the United Kingdom. CFTC Regulation 30.7(c) requires, among other things, that an FCM deposit secured amount funds under the laws and regulations of the foreign jurisdiction that provide the greatest degree of protection to such funds. Regulation 30.7(c) also prohibits an FCM from waiving any protections afforded to such funds under the laws of the foreign jurisdiction. While a UK investment firm that is not a bank is required by the UK Financial Conduct Authority to deposit cash collateral with one or more third-party banks as “client money,” a UK investment firm that is also a licensed deposit-taking bank may instead utilize the “bank exception” to hold cash collateral as a deposit subject to UK Prudential Regulation Authority regulations. The DSIO Interpretation states that an FCM is not waiving rights in violation of Regulation 30.7(c) if it deposits secured amount funds with a UK investment firm that has elected the “bank exemption.” The Interpretation reminds FCMs that CFTC Regulation 1.11 requires an FCM to monitor segregation risks associated with holding customer funds at a particular depository, and notes it may be appropriate for FCMs to compare risk profiles of UK banks as part of the depository selection process.
CFTC Staff Letter No. 14-110 is available here.