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Federal Register / Vol. 86, No. 27 / Thursday, February 11, 2021 / Rules and Regulations arise, including in certain enumerated circumstances; 163 iii establish and administer written policies and procedures reasonably designed to prevent violations of the Act and Commission regulations; 164 iv take reasonable steps to ensure compliance with the Act and Commission regulations; 165 v establish procedures for the remediation of noncompliance issues identified by the CCO through certain specified protocols; 166 vi establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues; 167 vii establish and administer a compliance manual and a written code of ethics; 168 viii supervise a SEFs selfregulatory program; 169 and ix supervise the effectiveness and sufficiency of any regulatory services provided to the SEF in accordance with 37.204.170
1. Proposed Rules
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The Commission proposed to consolidate certain existing provisions of 37.1501d to be renumbered as 37.1501c, specify a CCO may identify noncompliance matters through any means in addition to the currently prescribed means, and clarify that the procedures followed to address noncompliance issues must be reasonably designed by the CCO to handle, respond, remediate, retest, and resolve noncompliance issues identified by the CCO.171 The Proposed Rules acknowledged that a CCO may not be able to design procedures that detect all possible noncompliance issues and noted that a CCO may utilize a variety 163 17 CFR 37.1501d2. A CCO is specifically required to address conflicts between i business considerations and compliance requirements; ii business considerations and the requirement that the SEF provide fair, open, and impartial access under 37.202; and iii a SEFs management and board members. 17 CFR 37.1501d2i through iii.
164 17 CFR 37.1501d3.
165 17 CFR 37.1501d4.
166 17 CFR 37.1501d5.
167 17 CFR 37.1501d6.
168 17 CFR 37.1501d7.
169 17 CFR 37.1501d8.
170 17 CFR 37.1501d9.
171 Existing paragraph 37.1501d5 requires a CCO to establish procedures for remediation of noncompliance issues identified through a compliance office review, look-back, internal or external audit finding, self-reported error, or validated complaint. Existing paragraph 37.1501d6 requires a CCO to establish and follow appropriate procedures for the handling, management response, remediation, retesting, and closing of noncompliance issues. The Commission proposed to consolidate and amend these requirements, and renumber the consolidated requirement to paragraph 37.1501c5.

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of resources to identify noncompliance issues beyond a limited set of means.
The Commission also proposed to amend the CCOs duty to resolve conflicts of interest.172 First, the CCO
would be required to take reasonable steps to resolve material conflicts of interest that may arise.173 This proposed amendment reflects the Commissions view that the current requirement is overly broad and impractical because a CCO cannot be reasonably expected to successfully resolve every potential conflict of interest that may arise. The Commission further proposed to eliminate the existing enumerated conflicts of interest to avoid any inference that they are an exhaustive list of conflicts that a CCO must address.174
The Commission stated these proposed amendments would not weaken the CCOs statutory duty to address conflicts of interest, but rather reflect the CCOs practical ability to detect and resolve conflicts.175
Moreover, the proposed amendments reflected the Commissions belief that a CCO should have discretion to determine the conflicts that are material to the SEFs ability to comply with the Act and the Commissions regulations.176
2. Summary of Comments WMBAA supports the proposed changes to the CCOs duties.177
3. Final Rules The amendments are being finalized as proposed, with one exception. The Commission notes the list of potential conflicts that a CCO should resolve under existing 37.1500d2 does not create an inference that they are an exhaustive list of conflicts that a CCO
must address but, instead, provides useful examples, and the list will not be eliminated as proposed.178 The Commission continues to believe the 172 The Commission proposed to renumber existing 37.1501d2, which addresses the CCOs duty to resolve conflicts of interest, to 37.1501c2 and amend the requirement as described.
173 The Commission also proposed to eliminate a body performing a function similar to the board of directors under proposed 37.1501c2 existing 37.1501d2, as this phrase is already included in the definition of board of directors under 37.1501a.
174 These provisions are currently set forth under existing 37.1501d2i through iii. The Commission also proposed additional, technical changes to existing 37.1501d, d1, d7 and d8, to renumber them as 37.1501c, c1, c6
and c7, respectively and to renumber existing paragraph 37.1501c9 as 37.1501c8.
175 84 FR 62034.
176 Id.
177 2019 WMBAA Letter at 25.
178 The list will be re-designated as 37.1501c2i through iv.

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amendments do not weaken the CCOs duties to identify and address conflicts of interest. Rather, the amendments reflect the practical reality that, in the Commissions experience, a CCO cannot be reasonably expected to successfully detect and resolve every potential conflict of interest that may arise.
E. 37.1501dPreparation of Annual Compliance Report 179
Existing 37.1501ePreparation of annual compliance reportrequires the CCO to annually prepare and sign an ACR that, at a minimum, i describes the SEFs written policies and procedures, including the code of ethics and conflicts of interest policies; 180 ii reviews the SEFs compliance with the Act and Commission regulations in conjunction with the SEFs policies and procedures; 181 iii provides a selfassessment of the effectiveness of the SEFs policies and procedures, including areas of improvement and related recommendations for the SEFs compliance program or resources; 182
iv lists material changes to the policies and procedures; 183 v describes the SEFs financial, managerial, and operational resources, including compliance program staffing and resources, a catalogue of investigations and disciplinary actions, and a review of the disciplinary committees performance; 184 vi describes any material compliance matters identified through certain enumerated mechanisms e.g., compliance office review or lookback, and explains how they were resolved; 185 and vii certifies that, to the best of the CCOs knowledge and reasonable belief and under penalty of law, the ACR report is accurate and complete.186
After part 37 was implemented, the Commission gained experience and received feedback on the ACR
requirements. The Commission determined that some of the required ACR content provides it with minimal meaningful insight into a SEFs compliance program. For example, some of the content is duplicative of information obtained by the Commission from other reporting channels, such as the system-related information that a SEF must file pursuant to Core Principle 14 and rule certifications filed pursuant to part 40 of 179 The Commission is renumbering existing 37.1501e to 37.1501d.
180 17 CFR 37.1501e1.
181 17 CFR 37.1501e2i.
182 17 CFR 37.1501e2ii through iii.
183 17 CFR 37.1501e3.
184 17 CFR 37.1501e4.
185 17 CFR 37.1501e5.
186 17 CFR 37.1501e6.

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