CFTC looks to encourage whistleblowing
Employees at broker-dealers and other firms in the derivatives industry are being given renewed encouragement to report to regulators if they see something that appears to break the rules.
The Commodity Futures Trading Commission (CFTC) this week approved changes to its rules with the aim of strengthening the agency’s anti-retaliation protections for whistleblowers and enhancing the transparency of the process for reviewing whistleblower claims – giving individuals the chance to challenge a decision before it is finalized.
Under these rule changes, the CFTC or a whistleblower may now bring an action against an employer for retaliation against an employee who reports concerns to the commission. The amendments also prohibit employers from taking steps to impede a would-be whistleblower from communicating directly with CFTC officials about a possible violation of the Commodity Exchange Act (CEA) by using a confidentiality, predispute arbitration or similar agreement.
‘The whistleblower program is an integral part of the [CFTC’s enforcement division’s] efforts to identify and prosecute unlawful conduct,’ says James McDonald, director of the division. ‘The commission’s approval of these rules… will further strengthen and enhance our efforts to protect customers and promote market integrity.’
The CFTC implemented its whistleblower program under the Dodd-Frank Act, which directed the commission to pay awards, subject to certain limitations and conditions, to whistleblowers who voluntarily give it original information about a violation of the CEA that leads to successful enforcement by the agency resulting in sanctions of more than $1 million. Dodd-Frank instructed the SEC to do likewise.
As of May 2, the SEC’s program had resulted in roughly $154 million being awarded to 44 whistleblowers. The CFTC has so far made four awards totaling more than $10.5 million, of which $10 million was granted in a single award.
In addition to strengthening anti-retaliation protections, the new CFTC amendments will add efficiency and transparency to the process of deciding whistleblower award claims and will, in many respects, harmonize the agency’s rules with those of the SEC’s whistleblower program, officials write in a related filing.
The changes create a claims review process involving a ‘claims review staff’ instead of the ‘whistleblower award determination panel’ to consider and issue a preliminary determination as to whether an award claim should be granted or denied. The updated review process will be similar to that established under the SEC’s own whistleblower rules, officials say. A whistleblower will then have an opportunity to request to view the record and may contest the preliminary determination before the CFTC issues a final determination.
Whereas whistleblower award determination panel has previously excluded officials from the agency’s enforcement department and office of general counsel (OGC), the claims review team looking at a potential award can include enforcement officials, though it must also include at least one non-enforcer. OGC officials are still excluded.
Specifically, the amendments make key changes or clarifications including:
- A person may not take any action to impede an individual from communicating directly with the commission’s staff about a possible violation of the CEA, including by enforcing, or threatening to enforce, a confidentiality agreement or predispute arbitration agreement with respect to such communications
- The commission has authority to bring an action against an employer who retaliates against a whistleblower, regardless of whether the whistleblower qualifies for an award
- Actions that an employer took after a whistleblower reported internally but before providing information to the CFTC may be relevant to whether prohibited retaliation occurred
- A whistleblower may be eligible for an award by providing the commission with original information without being the original source of the information
- A whistleblower retains eligibility for an award based on information provided by the him/her to certain specified persons or authorities, which now includes foreign futures authorities, before they provided the information to the CFTC.