The US Commodity Futures Trading Commission (CFTC or Commission) recently voted 4-1 in an open meeting to codify existing staff no-action letters, permanently exempting qualified family offices from having to register as commodity pool operators (CPOs) and commodity trading advisors (CTAs), and waiving the notice filing obligation currently included in the CFTC's exemptive regime.[1] The Final Rule was published in the Federal Register today, December 10, 2019, and takes effect on January 9, 2020.

The Final Rule makes permanent the Commission's existing policy – established through a series of staff no-action letters[2] – by amending CFTC Rule 4.13 and 4.14 to establish CPO and CTA registration exemptions for persons meeting the definition of "family office," consistent with the regulatory exclusion from the definition of "investment adviser" for family offices adopted by the Securities and Exchange Commission (SEC).[3] Qualified family offices now have regulatory certainty that CPO/CTA registration with the CFTC, and thus with the National Futures Association (NFA), is not necessary pursuant to an agency regulation adopted in an Administrative Procedure Act-compliant process. This means that family offices have greater regulatory certainty about the CFTC's policy than having to rely solely on staff no-action letters, which can be rescinded or amended without any formal notice or comment.

Specifically, CPOs do not need to register with the Commission and the NFA if: (a) interests in the qualifying commodity pool are exempt from registration under the Securities Act of 1933, and such interests are sold only to "family clients;" (b) the commodity pool qualifies as a "family office;" and (c) the person reasonably believes, at the time of investment, or at the time of conversion for an existing pool, that each person who participates in the pool is a "family client" of the "family office." The Final Rule relies on the SEC's definitions[4] of "family clients" and "family office" to ensure consistency between the two agencies. Similarly, CTAs do not need to register if they direct commodity trading advice solely to, and for the sole use of, "family clients."

The Final Rule does not require qualified family offices to file notice with the Commission before claiming an exemption from registration as a CPO or CTA. However, family offices wishing to rely on the exemptions are encouraged to create and maintain an internal record documenting the relevant exemption they wish to claim, as well as their qualifications for that exemption.[5]

The Commission explained its reasoning for codifying this registration relief:

[F]amilial relationships inherent in Family Offices provide a reasonable mechanism for protecting the interests of family clients and resolving disputes amongst them, and that the regulatory interest is lower than in typical, arms-length transactions where the CPO and the pool participants, or the CTA and its advisory clients, do not have close relationships and/or long-standing family history between them. The Commission also understands that Family Offices are not operations of the type and nature that warrant regulatory oversight by the Commission, because, by definition, a Family Office is not a vehicle in which non-family clients would be solicited or permitted to invest. The Commission continues to believe that these unique characteristics reduce the need for and utility of the benefits and protections generally afforded by the Commission's regulatory regime for CPOs and CTAs and further justify providing Family Offices relief from that regime.[6]

Commissioner Dan Berkovitz dissented from the Final Rule and the decision to remove the notice requirement. He claimed that family offices are very large enterprises that can afford the annual notice filings for CPOs wishing to claim the exemption.[7] "The estimated $28.50 annual cost of filing a notice of claim of exemption is trivial compared to the hundreds of millions of dollars managed by the average family office CPO," he said, using a sticky note during the open meeting to demonstrate how little information is required to be submitted in such a filing.