CFTC Chair Heath P. Tarbert directed staff ("Staff") on the use of (i) no-action letters, (ii) interpretive letters, (iii) Staff guidance, advisories and FAQs, and (iv) exemptive letters. He instructed Staff "to ensure that Staff Letters are limited to those circumstances that are not suitable for a general rulemaking," and that "Staff Letters should supplement, rather than replace, rulemakings" (emphases in the original).
In a "Directive on the Use of Staff Letters and Guidance," Mr. Tarbert drew the following distinctions:
With regard to no-action letters, Mr. Tarbert stated, time-limited relief should be offered to market participants (i) experiencing operational difficulties that impede timely compliance (transitional compliance relief), (ii) raising unique issues about CFTC regulations where the relevant situation was not contemplated by the relevant regulations (or "Square Peg" relief) and (iii) facing challenges brought on by, among other things, a market crisis. According to Mr. Tarbert, persons other than the recipient of a no-action letter may not rely on the letter, but may look to the letter as instructive of a Division's views.
Mr. Tarbert described interpretive letters as being derived from statutory provisions or regulations so as to provide context for ambiguous terms. For Staff guidance, advisories and FAQs, Mr. Tarbert stated, the Staff should advise the public "prospectively" as to how the Staff will implement the underlying provisions of regulation.
Mr. Tarbert stated that exemptive letters may be issued only where the Staff has been granted explicit authority by the Commission. He said that exemptive letters may include conditions that are "traceable" to relevant regulations, but cautioned against amending existing regulations within a letter and against exemptive letters that would have effect beyond the recipient, in which case, he said, rulemaking would be more appropriate.
Mr. Tarbert underscored that the CFTC acts best with public input and that, as a result, "rulemaking should be the agency's default policymaking vehicle."
Chair Tarbert's guidance follows closely on the issuance of a statement by the SEC's two Democratic Commissioners that the staff's authority should be circumscribed. Notwithstanding this unusual agreement across the political divide, it is exactly the wrong way to go. The SEC and the CFTC have authority over vast swaths of the U.S. economy. It is extremely difficult and time-consuming to get the Staff to say "yes" to almost any question, even where yes is the right policy answer. If every meaningful question must go up for Commission action, whether at the SEC or the CFTC, the gridlock becomes much worse.
Think of the SEC and CFTC as business organizations. If the leaders of those organizations decide that they cannot delegate meaningful decision-making authority to their senior staff, those organizations will not be successful. It should not be the case that, as the real world seems to move ever faster, the regulators organize their operations to move more slowly.
Further, persons other than the recipient of a no-action letter ought to be able to rely on it, provided that they fit the terms of the letter. Otherwise, the regulator has created an unlevel playing field; or will require its staff to write numerous identical letters to numerous parties. Perhaps a better solution is for a firm that relies on another firm's letter to notify the regulator. That would allow the regulator to inquire further as to whether the conditions were really met, or should be altered, or whether rulemaking is necessary.
Finally, the enforcement division of a regulator should be bound by a no-action letter issued by a rulemaking division of that regulator. It is not the role of enforcement staff to second-guess the rulemaking divisions. As a practical matter, this is the way everyone expects that no-action relief works. It would hardly be relief if following the issuance of a no-action letter, the enforcement staff decided to conduct its own review of whether relief was appropriately granted, and if enforcement disagreed, to bring an action.
- CFTC Statement, Heath P. Tarbert: Directive of Chair Heath P. Tarbert on the Use of Staff Letters and Guidance
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