CFTC Issues Corrections to SD and MSP Requirements Regarding Risk Management Programs (Fed. Reg.)

Amendments correcting the final regulations published by the CFTC on April 3, 2012, which imposed certain requirements on swap dealers and major swap participants regarding risk management programs, were published in the Federal Register.

According to the CFTC, the final regulations as originally published contained errors that proved to be misleading and had to be corrected. Specifically, the new corrections deal with CFTC Rule 23.600 ("Risk Management Program for Swap Dealers and Major Swap Participants"). The corrected language appears below. The only change from the original language is that the word "annual" (which is italicized in the language quoted below) was mistakenly written as "quarterly" in the rule as adopted, which was clearly wrong since the first sentence of the paragraph refers to annual reviews.

"The annual reviews of the Risk Management Program shall include an analysis of adherence to, and the effectiveness of, the risk management policies and procedures, and any recommendations for modifications to the Risk Management Program. The annual testing shall be performed by qualified internal audit staff that are independent of the business trading unit being audited or by a qualified third party audit service reporting to staff that are independent of the business trading unit. The results of the annual review of the Risk Management Program shall be promptly reported to, and reviewed by, the chief compliance officer, senior management, and governing body of the swap dealer or major swap participant."

See: 79 FR 41126.