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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations
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Core Principle 15 does not require a SEF
to establish a ROC and the Commission has not finalized a rule that establishes requirements for a ROC.
Consistent with Core Principle 15, which requires a CCO to report to the SEFs board of directors or senior officer, the Commission proposed amendments under 37.1501b to allow a SEFs senior officer to have the same oversight responsibilities over the CCO as the board of directors. First, the Commission proposed to allow a CCO to consult with the board of directors or senior officer of the SEF as the CCO
develops the SEFs policies and procedures.150 Second, the Commission proposed to allow a CCO to meet with the senior officer of the SEF on an annual basis, in lieu of an annual meeting with the board of directors.151
Third, the Commission proposed to allow a CCO to provide self-regulatory program information to the SEFs senior officer, in addition to the board of directors.152
The Commission further proposed to eliminate the limitations on authority to remove a CCO, which currently restricts CCO removal authority to a majority of the board, or in the absence of a board, a senior officer.153 Instead, the Commission proposed a simplified requirement under proposed 37.1501b to establish that i the board or the senior officer may appoint or remove a CCO; 154 and ii the SEF
must notify the Commission within two 37.1501c1iii, and the requirement that the CCO provide self-regulatory program information to the ROC under existing 37.1501 c1iv.
150 The Commission proposed the amendment under proposed 37.1501b1i.
151 The Commission proposed to renumber existing 37.1501c1iii to 37.1501b5, based on the proposed consolidation of existing paragraphs b and c, amend the requirement as described, and title the paragraph Annual meeting with the chief compliance officer.
152 The Commission proposed to renumber existing 37.1501c1iv to 37.1501b6, based on the proposed consolidation of existing paragraphs b and c, amend the requirement as described, title the paragraph Information requested of the chief compliance officer, and make additional, technical changes.
153 The Commission proposed to eliminate this requirement under existing 37.1501c3. In addition to the changes discussed herein, the Commission proposed to renumber existing 37.1501c1ii to 37.1501b4 and title the paragraph Compensation of the chief compliance officer.
154 The Commission proposed to consolidate and amend the requirements under existing 37.1501c1i in part, which addresses the appointment of a CCO by the board or senior officer, with existing 37.1501c3i, which currently addresses the removal of a CCO. Based on the proposed consolidation of existing paragraphs b and c, the Commission proposed to renumber this consolidated provision to paragraph b3, retitle the consolidated provision to Appointment and removal of chief compliance officer, and make additional, technical changes.

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business days of the appointment or removal on an interim or permanent basis of a CCO.155 Based on its experience, the Commission recognized that in many instances, the senior officer may be better positioned than the board of directors to provide day-to-day oversight of the SEF and the CCO, as well as to determine whether to remove a CCO.156 Therefore, consistent with Core Principle 15, the Commission believes a SEFs senior officer should have equivalent CCO oversight authority as the SEFs board of directors. This proposed amendment is consistent with Core Principle 15, which does not mandate a voting percentage to approve or remove a CCO. The Commission also believes these proposed amendments would allow a SEF to more appropriately designate, appoint, supervise, and remove a CCO based on the SEFs particular corporate structure, size, and complexity, and also continue to ensure a level of independence for a CCO consistent with Core Principle 15.157
Based on the proposed consolidation of existing 37.1501b and c, the Commission also proposed several technical amendments to the remaining provisions under proposed 37.1501b, including the renumbering of certain existing provisions.158
2. Proposed Acceptable Practice The Commission proposed to adopt a new acceptable practice to Core Principle 15 in Appendix B providing, in determining whether the background and skills of a potential CCO are appropriate for fulfilling the responsibilities of the role of the CCO, a SEF has the discretion to base its determination on the totality of the qualifications of the potential CCO, including, but not limited to, compliance experience, related career experience, training, and any other 155 The Commission notes that notification to the Commission of the appointment and removal of a CCO is currently required under existing 37.1501c1i and existing 37.1501c3ii, respectively. Based on the proposed consolidation of existing paragraphs b and c, the Commission proposed to consolidate and amend these notification requirements, and renumber the consolidated requirement to 37.1501b3i.
156 83 FR 62033.
157 Id.
158 The Commission proposed to renumber the requirements under existing 37.1501b2
Qualifications of chief compliance officerto proposed 37.1501b2i and ii. The Commission also proposed to retitle existing 37.1501c1ii, which specifies that the board or the senior officer must approve the CCOs compensation, to Compensation of the chief compliance officer. Based on the proposed consolidation of existing 37.1501b and c, the Commission proposed to renumber this requirement to 37.1501b4.

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relevant factors related to the position.
The Commission stated a non-exclusive list provides the clarity that SEFs sought regarding a CCOs requisite qualifications, and also provides a board of directors and senior officer reasonable flexibility in appointing a CCO.159 The proposed acceptable practice also states a SEF should be especially vigilant regarding potential conflicts of interest when appointing a CCO.
3. Summary of Comments WMBAA supports the proposed amendments to 37.1501b and c.
According to WMBAA, the Commissions revised rules should eliminate duplicative or unnecessary requirements, streamline existing provisions, and thereby allow SEFs to meet their statutory and regulatory obligations in a more effective and less burdensome manner.160
4. Final Rules and Acceptable Practice The Commission is adopting the amendments to 37.1501b and c as proposed. These changes will mitigate potential confusion by removing requirements that are duplicative of provisions in Core Principle 15 and references to governance structures, such as the ROC, that are not required by statute or regulation. The Commission believes the amendments granting the SEFs senior officer additional oversight authority over the CCO better reflects the reality that the senior officer is often better-positioned than the board of directors to facilitate a CCOs effectiveness on a day-to-day basis, while still maintaining the CCOs independence to an appropriate degree.
Further, the acceptable practice on qualifications of a CCO will provide SEFs with additional clarity on appropriate considerations in selecting a CCO, without limiting permissible considerations to the enumerated list.
As stated in the acceptable practice, the Commission continues to stress the importance of considering potential conflicts of interest in appointing a CCO.
D. 37.1501cDuties of Chief Compliance Officer 161
Existing 37.1501dDuties of chief compliance officer requires a CCO, at a minimum, to: i Oversee and review the SEFs compliance with the Act and Commission regulations; 162 ii resolve any conflicts of interest that may 159 83

FR 62033.
WMBAA Letter at 24.
161 The Commission is renumbering existing 37.1501d to 37.1501c.
162 17 CFR 37.1501d1.
160 2019

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