Republished with full copyright permissions from The San Francisco Press.

When it comes to settling with regulatory bodies like the Securities and Exchange Commission (SEC) or the Commodities Futures Trading Commission (CFTC), companies have traditionally avoided admitting guilt and accepting monitors as part of the deal. However, the tides are changing, as the new head of enforcement at the CFTC, Ian McGinley, recently announced a tougher approach. We will briefly discuss about the implications of this shift, including higher fines, the possibility of employing monitors, and the importance of a culture change within the financial industry.

No-admit, no-deny resolutions no longer the default:
For many years, the CFTC, along with other regulatory agencies, has resolved matters on a no-admit, no-deny basis. However, McGinley emphasized that this will no longer be the default approach during negotiations. Firms should no longer assume that they can avoid admitting any wrongdoing when reaching a settlement with the CFTC or other regulatory bodies.

Increased fines and the prospect of monitors:
McGinley, who assumed the role of head of enforcement in February, further indicated that companies should expect higher fines and an increased likelihood of having to hire external monitors to oversee their conduct after a settlement. This change is in response to the rise in recidivism within the regulated financial services sector. McGinley’s colleague, Commissioner Christy Goldsmith Romero, also stressed the need for stronger measures, such as heightened penalties, defendant admissions, undertakings, and in some cases, monitors.

Differentiating between repeat offenses and new violations:
McGinley clarified that there will be some nuance in determining whether a firm qualifies as a repeat offender. The CFTC will consider various factors, such as whether the violations pertain to different laws or if they occurred at considerable intervals. This approach aims to distinguish firms that repeatedly break the same rule from those facing separate charges. McGinley highlighted that recidivists who breach different rules may face harsher penalties, whereas those who self-report and cooperate with the CFTC may receive reduced penalties and potentially avoid the imposition of a monitor.

Encouraging compliance measures:
McGinley also underscored the importance of firms investing in compliance measures. He noted that at the end of the day, penalties should outweigh the costs of compliance. By encouraging firms to self-report and cooperate, the CFTC aims to foster a culture of compliance within the financial industry. Firms that take proactive steps to address violations and enhance their compliance departments are more likely to receive favorable treatment from the CFTC.

With the CFTC signaling a tougher stance on financial wrongdoings, companies must prepare for higher fines, the possibility of hiring monitors, and a greater emphasis on compliance. The CFTC’s objective is to deter recidivism and promote a culture of compliance within the industry. Firms that are forthcoming, transparent, and willing to invest in compliance measures may receive more favorable outcomes.