After almost a year of uncertainty, the CFTC issued a “no-action” letter just one month before the new CPO regulation – which would have required family offices to register with the commission – was due to come into effect on 31 December.
SFOs can breath a sigh of relief at the paperwork mountain they have avoided in the run up to Christmas – the move relieves family offices of all the cost and administration that registration entails.
However, SFOs still need to notify the CFTC before 31 December in order to claim their CPO exemption.
SFOs had been calling for clarification relating to CPO status since the introduction of the Dodd-Frank Act in the spring. The act rescinded one of the original CFTC clauses SFOs had used to avoid registration as a CPO. And while SFOs were exempted from Securities and Exchange Commission registration under the act, it did not exempt them from CPO registration.
However, the CFTC decided to exempt SFOs after lobbying from the Private Investors Coalition, a US lobby group. There was widespread concern from family offices that the CPO regulations would damage their interests without legislators properly understanding their operations.
Jake Seher, senior legaslative adviser with Venables LLP, a Washington law firm, and a representative of the PIC, told CampdenFB that the CFTC's decision made sense. “An SFO does not solicit or supervise a third party for money, and a family office that has a portfolio involving commodities for diversification or hedging does so for the family and/or entities controlled by the family."
An SFO will almost “self-regulate” as it has a personal relationship with its stakeholders, reducing the need for customer protection from the CFTC, he added.
But, despite the relaxation in CPO rules, Seher said US family offices continued to be affected by other regulation. “Regulatory issues are a major concern to family offices and necessitate constant monitoring to assure compliance. Family offices are not free from regulation in the US, and provide a great deal of information to regulators.”
The CFTC will use the same criteria as the SEC does for the family office exemption from the Dodd-Frank Act.