September 29, 2017

Mr. Christopher Kirkpatrick
Secretary
U.S. Commodity Futures Trading Commission
1155 21st Street, NW
Washington, DC 20581

Re: Commodity Futures Trading Commission Request for Public Input on Simplifying Rules (Project KISS); Risk Management Program Requirements (RIN 3038–AE55)

Dear Mr. Kirkpatrick:

The Securities Industry and Financial Markets Association (“SIFMA”) 1 appreciates the continuing efforts of the Commodity Futures Trading Commission (“CFTC” or “Commission”) and its staff to review rules, regulations and practices to identify those areas that can be simplified and made less burdensome and costly, including as part of the Project KISS initiative.2

One area that would benefit from this review is CFTC Regulations § 23.600 (“Rule 23.600”), which requires swap dealers (“SDs”) and major swap participants (together with SDs, “Swap Entities”) to adopt risk management programs (“RMPs”). For most Swap Entities, Rule 23.600 duplicates existing prudential supervision and regulation. These Swap Entities face undue costs, complexity and uncertainty. The current approach also leads the Commission and National Futures Association (“NFA”) to expend time and resources supervising the details of risk management practices already subject to comprehensive supervision by other regulators.

Rule 23.600 accordingly would benefit from greater regulatory deference. As recently noted by Chairman Giancarlo, “In a time of administrative budget constraints, regulatory deference enables us to work smarter, not harder, in pursuit of common regulatory principles.”3 Consistent with this objective, and for the other reasons described below, the Commission should expand its existing substituted compliance framework to make both U.S. and non-U.S. Swap Entities eligible for substitute compliance in connection with Rule 23.600.

A. Background on Rule 23.600

Rule 23.600 implements the requirement in Section 4s(j) of the Commodity Exchange Act (“CEA”) for a Swap Entity to “establish robust and professional risk management systems adequate for managing the day-to-day business of” the Swap Entity. Despite this principles-based statutory mandate, Rule 23.600 is highly prescriptive. It requires a Swap Entity to establish, document, maintain and enforce policies and procedures addressing over 60 different requirements, including multiple components of a swaps-specific governance framework involving 10 different requirements for escalation to or approval by specified senior personnel.

Rule 23.600 applies uniformly across Swap Entities, regardless of business model, prudential oversight by other regulators, or applicable capital rules. It is not harmonized with parallel risk management rules and guidance adopted by the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Office of the Comptroller of the Currency (“OCC”), the Securities and Exchange Commission (“SEC”) or other regulators, although Rule 23.600 draws from those rules and guidance in certain instances.

The Commission has permitted non-U.S. Swap Entities to substitute compliance with home country risk management rules and guidance for compliance with Rule 23.600.4 This substituted compliance framework has generally worked well, except in connection with risk exposure report requirements, which are not currently eligible for substituted compliance.5 U.S. Swap Entities, in contrast, have been required to satisfy Rule 23.600 in addition to otherwise applicable risk management rules and guidance.

We also note that the pre-existing prudential oversight framework for swaps activities results in greater potential for regulatory duplication and conflicts in connection with RMP requirements for Swaps Entities—and concomitantly greater benefits for regulatory deference—than the Commission’s separate RMP requirements for futures commission merchants, which address considerations unique to Commission regulation of customer clearing activities (such as segregation risk).

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1 SIFMA is the voice of the U.S. securities industry. We represent the broker-dealers, banks and asset managers whose nearly 1 million employees provide access to the capital markets, raising over $2.5 trillion for businesses and municipalities in the U.S., serving clients with over $18.5 trillion in assets and managing more than $67 trillion in assets for individual and institutional clients including mutual funds and retirement plans. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA). For more information, visit http://www.sifma.org.

2 See Project KISS, 82 FR 21494 (May 9, 2017), available at: https://www.gpo.gov/fdsys/pkg/FR-2017-05-09/pdf/2017-09318.pdf; and Press Release, available at: http://www.cftc.gov/PressRoom/PressReleases/pr7555-17.

3 See J. Christopher Giancarlo, Deference is the Path Forward in Cross-Border Supervision of CCPs at: http://www.cftc.gov/PressRoom/SpeechesTestimony/giancarlooped091117.

4 See Interpretive Guidance and Policy Statement Regarding Compliance with Certain Swap Regulations, 78 Fed. Reg. 45292 (July 26, 2013); see, also Comparability Determination for Australia: Certain Entity-Level Requirements, 78 Fed. Reg. 78864, 78869 (Dec. 27, 2013); Comparability determination for Certain Requirements under the Laws of Canada, 78 Fed. Reg. 78839, 78843 (Dec. 27, 2013); Comparability Determination for the European Union: Certain Entity-Level Requirements, 78 Fed. Reg. 78923, 78928 (Dec. 27, 2013); Comparability Determination for Hong Kong: Certain Entity-Level Requirements, 78 Fed. Reg. 78852, 78857 (Dec. 27, 2013); Comparability Determination for Japan: Certain Entity-Level Requirements, 78 Fed. Reg. 78910, 78915 (Dec. 27, 2013); and Comparability Determination for Switzerland: Certain Entity-Level Requirements, 78 Fed. Reg. 78899, 78903 (Dec. 27, 2013).

5 We provide specific comments on risk exposure report requirements below