Preparing for Security-based Swap Dealer Registration: Comparing SEC & CFTC Regulatory Requirements

Preparing for Security-based Swap Dealer Registration: Comparing SEC & CFTC Regulatory Requirements

Client Alert

A joint client alert of WilmerHale and Oliver Wyman

WilmerHale Authors: Bruce H. Newman and Aaron Friedman,
Oliver Wyman Authors: Allen Meyer and Tammi Ling

The Securities and Exchange Commission (SEC) security-based swap dealer rules have finally been issued, and a large amount of work will be required to comply. The good news is there is a foundation to build on, given that Commodity Futures Trading Commission (CFTC) swap dealer programs are now relatively mature at most organizations. However, there is serious risk of organizations underestimating the level of effort required to implement the SEC swap dealer rules due to a misperception that this is only a small incremental addition to the existing program. The purpose of this article is to provide guidance on how to approach the journey to implement the SEC swap dealer rules, and to serve as a catalyst for action.

At the outset, it is critical to ensure appropriate senior management engagement across business, legal, compliance, operations and information technology (IT) functions. Dodd-Frank fatigue is a real risk, and competition for scarce resources in the current environment is fierce, so appropriate resourcing for this effort likely will be a challenge. Accordingly, responsible stakeholders (i.e., compliance and legal teams) must develop a clear narrative for senior management and provide a realistic assessment of what will be necessary to implement the new rules despite these headwinds. It is important for senior management to understand this is not a “compliance only” exercise, where all that is necessary is an updated compliance manual. The effort will require business sponsorship, meaningful IT resources to meet the new reporting requirements and legal resources to address the new required disclosures. It may also require additional staff in compliance to oversee this program, including the appointment of a chief compliance officer (CCO) for the SBSD program and resources to support the CCO. As some firms learned the hard way with respect to the CFTC swap dealer rules, poor project planning and shoddy implementation can result in substantial enforcement cases and fines (e.g., numerous trade reporting cases). Firms must act now to actively avoid these mistakes with respect to implementing the SEC SBSD rules, which ultimately pose similar risks.

Read the full alert here. 



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