On March 16, 2022, Commodity Futures Trading Commission (“CFTC”) Chairman Rostin Behnam delivered a keynote address at the FIA Boca 2022 International Futures Industry Conference. Behnam called for a “culture of compliance” among private actors and indicated that call would be met by heightened enforcement. He underscored the agency’s focus on developments, including the emerging intersection of commodities and climate, challenges and benefits related to the rise of cryptocurrency and cloud technologies, and the prevalence of whistleblower programs in identifying and addressing fraud. Behnam also addressed regulatory shifts created by the COVID-19 pandemic and geopolitical developments, including climate change.
How Companies Can Prepare
Benham’s speech signaled heightened reliance on whistleblower programs and emphasized enforcement related to developing technologies. Companies can proactively respond to these pronouncements by (1) ensuring their internal whistleblower programs are well-established and credible and (2) by investing in cybersecurity mechanisms. As to the first point, companies should maintain active, transparent, and comprehensive internal whistleblower programs, and conduct prompt and thorough investigations when misconduct is reported. As to the second point, the advent of cloud technologies has generated unprecedented cybersecurity risks. Accordingly, companies should take immediate action to bolster their cyber oversight and controls. In his speech, Benham called attention to both the efficacy of the CFTC’s whistleblower program and the prevalence of complaints related to cryptocurrency. Benham also foreshadowed a crackdown on the quality of CFTC registrants’ cybersecurity regimes. By prioritizing controls in these two areas, companies can mitigate the possibility of CFTC enforcement actions.
Key Factors Driving CFTC Enforcement Priorities
At the outset, Behnam described shifts in monetary policy, technology, and geopolitics as the main factors driving the CFTC’s enforcement priorities. First, the COVID-19 pandemic generated shifts in monetary and fiscal policy that have required the CFTC to “reassess, reevaluate, and reprice,” Behnam explained. Behnam also attributed both “extreme volatility” and “record trading volume on global markets” to recent geopolitical shifts, namely the ongoing tragedy in Ukraine. Such shifts, Behnam said, have required the CFTC to be on “high alert” and to engage with agencies across the administration to share market data and pursue global financial stability. Behnam specifically noted that the CFTC’s collaboration with the Treasury Department has been critical as recent sanctions have affected markets and their participants. Despite the challenges COVID-19 and recent international unrest have presented, Behnam emphasized the United States’ central counterparties (“CCPs”) remain the “strongest in the world.” Behnam also noted that staff in the Division of Clearing and Risk (“DCR”) is putting the final touches on a proposed rulemaking addressing risk governance for derivatives clearing organizations (“DCOs”), and he affirmed his continued support for tools that further strengthen registered DCOs.
The Commodity Market’s Move to Tech
As markets continue migrating toward “the cloud,” Behnam said the CFTC is close behind. Though cloud technologies will allow the agency to more cost-effectively and efficiently store and analyze data, Behnam noted the CFTC is also aware of the associated cybersecurity risks. The CFTC’s registrants will, Behnam said, continue to be expected to “instill and employ a high level of oversight and due diligence with respect to cybersecurity controls.” In response to increasing concerns for potential cyber breaches, staff in the Market Participants Division (“MPD”) is developing policy to address system safeguards for futures commission merchants (“FCMs”), swap dealers, and major swap participants. One amendment under consideration, for example, would “require the establishment and maintenance of a program of system safeguards and risk analysis with respect to each firm’s operations and automated systems to ensure such systems are reliable, secure, and have adequate scalable capacity.”
Intersection of Commodities and Climate
Reflecting on last year’s announcement of the CFTC’s new Climate Risk Unit (“CRU”), Behnam emphasized the agency’s commitment to “understanding, pricing, and mitigating” climate‑related market risks, particularly focusing on the role of derivatives. As the climate crisis intensifies, Behnam encouraged conference attendees to reach out to the CRU with ideas, input, and feedback related to the CFTC’s efforts to tackle the climate crisis in the commodity and derivatives markets. Behnam further noted the increased international focus on emissions reductions, in part stoked by the passage of Article 6 at COP 26. To support countries’ efforts to curb emissions, Behnam indicated the CFTC’s CRU will engage with traditional market participants, offset registries, non-governmental organizations, and multilateral bodies.
Call for a Culture of Compliance and the CFTC Whistleblower Program
Behnam called for a “culture of compliance” among private actors, noting that many instances of misconduct “appear to be rooted in a lack of risk management or the absence of a structured compliance function.” He indicated the CFTC will strive to incite a culture of compliance by “asserting its authority and regulatory oversight, tempered by the need to be clear in the boundaries of our authority.” In the same vein, Behnam also highlighted the success of the CFTC’s Whistleblower Program, which has paid out over $300 million to whistleblowers since issuing its first award in 2014. Tips related to cryptocurrency fraud have become increasingly prevalent. Behnam explained that of the more than 600 whistleblower tips the CFTC has received since October, a “large number” are related to crypto schemes, including pump‑and‑dump schemes, refusals to honor requests to withdraw money, and romance scams. As new technologies afford bad actors—including sanctioned entities—new ways “to bypass the law and remain anonymous,” Behnam declared that the CFTC’s Whistleblower Program will become an “increasingly important tool.”