The CFTC Division of Swap Dealer and Intermediary Oversight ("DSIO") clarified the circumstances in which the Customer Identification Program ("CIP") and Beneficial Ownership ("BO") regulations under the Bank Secrecy Act do not apply to "voice" brokers. Voice brokers usually arrange derivatives transactions between dealers via telephone, instant message or similar means of communications, or enter orders directly on an exchange through electronic means.

Since the passage of the Dodd-Frank Act, voice brokers have become subject to Introducing Broker ("IB") registration requirements under the Commodity Exchange Act. DSIO stated that if an IB does not introduce an account to a futures commission merchant, the IB has neither customers nor accounts and, therefore, neither the CIP rule nor the BO rule applies.

The DSIO interpretation was made in consultation with the Financial Crimes Enforcement Network, which is the agency responsible for enforcing compliance with the Bank Secrecy Act.

Commentary / Bob Zwirb

DSIO's explanation for treating IBs that handle swaps differently from those that handle futures inadvertently raises the question of whether the former should continue to be regulated as IBs. As DSIO explains, while IBs intermediating futures truly introduce customers to FCMs, many of those engaged in swap transactions do not, but instead enter orders on behalf of a transacting party directly with the exchange. Moreover, unlike IBs transacting in futures, many IBs transacting in swaps do not develop a relationship with their customers (for example, they have no access to transacting parties' account statements and other records), but rather simply charge a fee for arranging the trade. As DSIO dryly observes, prior to Dodd-Frank, persons that brokered swap transactions in this manner could do so "without having to register." Former CFTC Chair J. Christopher Giancarlo often complained that the regulatory framework for swaps was "disproportionately modeled on the U.S. futures market." This seems a good example of Mr. Giancarlo's observation.

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