The Commodity Futures Trading Commission will not impose commodity pool operator registration requirements on single family offices that qualify as such under the Securities and Exchange Commission definition.

The Division of Swap Dealer and Intermediary Oversight, part of the CFTC, said in a no-action letter that it will not recommend enforcement action for failure to register with the Commission as a CPO against any CPO that is a family office as defined by the SEC, providing they meet certain other criteria like submitting a claim for relief.

The Private Investor Coalition, a group of over 60 single family offices in the US which says it led efforts to have family offices exempted, said this means that almost every single family office in the country is now free of regulation as a commodity pool operator under the CFTC and investment advisor under the SEC.

Background

In February 2012, the CFTC changed the way it regulated commodity pool operators and commodity trading advisors, adopting a rule which removed relief from annual reporting requirements for certain operators and added risk disclosure requirements, for example. Its aim was to make the actions of pool operators and trading advisors in the futures and swaps market more transparent to the regulator, and also to protect customers.

Particularly at stake was the removal of relief granted to commodity pool operators who only acted on behalf of individuals meeting a “qualified eligible person” standard, which family offices had generally relied on for exemption. The amendment in February therefore would have required many family offices to register as a CPO with the CFTC.

However, “family offices are not operations of the type and nature that warrant regulatory oversight by the Commission,” the Division said in the letter.

“That is, because a family office is comprised of participants with close relationships, and there is a direct relationship between the clients and the adviser, such relationships greatly reduce the need for the customer protections…as a function of these relationships, any disputes that arise between any of the family members concerning the operation of the family office could be resolved within that family unit, or through state courts under laws designed to resolve such family disputes,” it continued.

Reminiscent of Dodd Frank exemption

In its letter, the Division cited the work done by the SEC to exclude single family offices from having to register as investment advisors under the Dodd-Frank Act, saying the two cases were “substantially similar” in terms of the need for appropriate investor protections.

“In granting CPOs the relief described herein, the Division seeks to strike the appropriate balance between the Commission’s regulatory objectives and addressing the public concerns of family offices and family clients,” the letter said.