Statement of Commissioner Dan M. Berkovitz on Financial Surveillance Examination Program Requirements for Self-Regulatory Organizations
March 28, 2019
I support the targeted amendments to Commission Regulation 1.52 made in today’s final rules regarding third-party expert examinations of self-regulatory organization (“SRO”) financial surveillance programs. The amendments adopted in these final rules are an outgrowth of the Commission’s experience with Regulation 1.52 since 2013, and they maintain the Commission’s strong commitment to customer protection while modifying certain requirements found to provide no incremental regulatory benefit. The Commission’s customer protection rules are fundamental to safeguarding customer assets, promoting the safety and soundness of U.S. derivatives markets, and maintaining public confidence in our markets. I strongly support these customer protection rules.
Regulation 1.52 is part of the Commission’s comprehensive framework for the protection of customers and customer funds. The rules require that SROs, including contract markets and registered futures associations, monitor member FCMs’ compliance with financial and related reporting rules. In 2013, the Commission significantly enhanced its customer protection rules to provide customers with greater confidence that their funds are secure and that SROs have effective programs for the oversight of member FCMs.
The narrow amendments we are adopting address an SRO’s engagement of a third-party expert to evaluate its financial surveillance program. With experience, the Commission has determined that third-party experts are appropriate to assess an SRO’s implementation of examination standards issued by the Public Company Accounting Oversight Board (“PCAOB”). Commission staff is better positioned and has the expertise to evaluate an SRO’s oversight program as measured against the Commission’s rules. Commission staff routinely conducts such evaluations and provides feedback to SROs.
The final rules also make additional amendments to Regulation 1.52 regarding, for example, the frequency with which SROs must engage a third-party expert. Changes to relevant PCAOB standards are infrequent, and the final rules require an SRO to engage a third-party expert at least once every five years. As a further safeguard, Commission staff retains the authority to direct an SRO to engage a third-party expert when relevant changes in PCAOB standards occur.
I thank the CFTC staff for their work on these final rules and for their responsiveness to questions and comments.
 Regulation 1.52 also permits two or more SROs to file a plan with the Commission for delegating to another SRO certain responsibilities related to monitoring and examining FCMs’ compliance with financial and related reporting requirements. SROs participating in such a plan form a Joint Audit Committee (“JAC”), and prepare a Joint Audit Plan in accordance with the requirements of Regulation 1.52. The amendments to Regulation 1.52 adopted in today’s final rules also address the JAC’s engagement of third-party experts, as applicable.