Key Takeaways
- On February 25, 2025, the Commodity Futures Trading Commission’s (CFTC or Commission) Division of Enforcement (the Division) issued an advisory (the Advisory) on how the Division will evaluate self-reporting, cooperation and remediation when recommending enforcement actions.
- The Advisory rescinds prior Commission policies concerning self-reporting and cooperation and introduces a first-of-its-kind “Mitigation Credit Matrix” the Division will use to determine the appropriate penalty reduction. As part of its analysis, the Division will consult rubrics to evaluate the quality and value of the market participant’s self-reporting, cooperation and remediation efforts and key these assessments to the Matrix to determine whether credit will be awarded.
- This mitigation credit system is designed to create meaningful incentives for market participants to come forward and create more efficient pathways to case resolution. The new system also aligns CFTC policy with that of the U.S. Department of Justice (DOJ) and other financial regulators, with the hope that a more “straightforward” approach will better conserve government resources so that the CFTC may “do more with less.”
- Market participants should review the Advisory to best understand its implications and consult with counsel as soon as a potential violation is discovered or suspected in order to receive the most benefit from this new system, including whether to consider a self-report.
I. Background
On February 25, 2025, the CFTC released an Enforcement Advisory on Self-Reporting, Cooperation, and Remediation,[1] introducing metrics the Division will use to evaluate a company’s or individual’s conduct before and leading up to the discovery of a potential violation of the Commodity Exchange Act and throughout the investigation process. The metrics contemplate whether the company or individual (collectively, the Person) voluntarily self-reported the potential violation and the extent to which the Person cooperated in the Commission’s investigation. The nature and quality of the Person’s self-reporting and their level of cooperation will be ranked, and higher rankings in each category will earn the Person a higher “discount” on the Division’s recommended penalty, with the highest discount being 55% off the initial calculation of the civil monetary penalty.
Motivated by the CFTC’s desire to create more transparent and efficient enforcement, the Advisory not only rescinds prior CFTC guidance, but is also a departure from them in many respects. Specifically, the new guidance provides credit for self-reports to divisions other than the Enforcement Division and creates a safe harbor for good-faith reporting that is corrected later. The below provides an overview of the new guidance as well as certain key takeaways that may be considered when contemplating a self-report.
II. Mitigation Credits: Penalty Reductions Based on Self-Reporting and Cooperation
The Division may, subject to its discretion and the facts of each case, apply a discount on civil monetary penalties where a company or individual’s conduct “provide[s] material assistance” to the Division in support of its efforts to “conserve resources.” The Division will recommend this reduced penalty, called a “Mitigation Credit,” for self-reporting and cooperation. Mitigation Credits or discounts do not apply to disgorgement of profits or payment of restitution. Moreover, such payments are not credited against penalties. Mitigation Credit for self-reporting is assessed separately from Mitigation Credit for cooperation; thus, a Person could be eligible for Mitigation Credit based on self-reporting, cooperation, both, or neither, depending on the Person’s conduct before and during an investigation. That said, the Division may also consider other factors when making recommendations to the Commission, including the culpability of the actors; recidivism (if any) with respect to the same violation, and facts and circumstances not involving fraud, manipulation or other abuse(s); and the severity of the violation.
A. Self-Reporting Considerations and Tiers
The Division will evaluate self-reporting pursuant to a three-tier scale:
- Tier 1: No Self-Report. This tier is assigned when there was no self-report, the self-report was not reasonably related to or not designed to truly alert the Commission of the potential violation, or where the potential violation was known to the Commission from other sources.
- Tier 2: Satisfactory Self-Report. This tier is assigned when there was a self-report that notified the Commission of the potential violation but failed to include all material information reasonably related to the potential violation that was known to the Person at the time of the self-report.
- Tier 3: Exemplary Self-Report. This tier is assigned when the self-report notified the Commission of the potential violation, included all material information known to the Person at the time of the self-report, and provided additional information that assisted the Division with conserving resources in its investigation.
In furtherance of this analysis, the Division emphasized specific factors to be considered when awarding credit for self-reporting: (1) the voluntariness of the self-report (reported prior to an imminent threat of exposure); (2) to whom the self-report was made (a report made to an appropriate division of the CFTC or the Enforcement Division itself); (3) the timeliness of the report (the report must be “reasonably prompt,” considering steps taken to uncover the existence of a potential violation); and (4) the completeness of the self-report (the report contains all material information known to the Person at the time of the report, or the Person discloses relevant information as it becomes known).
To further encourage voluntary, complete self-reporting, the Division also provides a safe harbor for good-faith reporting or voluntary disclosure. Specifically, if a Person voluntarily self-reports in good faith but the information is later found to be inaccurate after further investigation, the Division will not recommend charges so long as the Person supplemented and corrected the inaccurate information.
B. Cooperation Considerations and Tiers
The Division will evaluate cooperation credit pursuant to a four-tier scale:
- Tier 1: No Cooperation. This tier is assigned when a Person has fully complied with subpoenas or other compulsory processes but did not provide substantial assistance to the Division.
- Tier 2: Satisfactory Cooperation. This tier is assigned when a Person has fully complied with subpoenas or other compulsory processes and also provides substantial, voluntary assistance to the Division’s investigation. This assistance can include providing documents, making presentations to the Division and making witnesses available for interviews or testimony.
- Tier 3: Excellent Cooperation. This tier is assigned when a Person consistently provided substantial assistance to the Division’s investigation. In addition to the acts under Satisfactory Cooperation, the Person must also have engaged in conduct such as performing internal investigations or reviews; providing the Division with thorough analysis of the potential violation, its root cause(s) and remedial action; and consistently and voluntarily providing documents and information.
- Tier 4: Exemplary Cooperation. This tier is assigned when a Person consistently and voluntarily provided material assistance to the Division’s investigation and the cooperation provided an exceptionally high degree of value. In addition to the acts under Excellent Cooperation, a Person may receive this tier when it proactively engaged in and used significant resources to provide material assistance to the Division’s investigation. Additionally, this tier includes significant completion of remediation and use of accountability measures.
As part of this analysis, Division will consider a non-exhaustive list of factors, including (1) whether the Person’s cooperation resulted in material assistance to the Division’s investigation, (2) the timeliness and nature of the cooperation, (3) the voluntariness of the cooperation, (4) the thoroughness and quality of the submissions to the Division to assist in its investigation, and (5) the extent of the cooperation, including whether the Person took steps to timely preserve documents and records, or whether it encouraged high-quality cooperation of its directors, officers and employees.
C. Remediation
The Advisory includes remediation in its cooperation scale, although it is careful to note that Mitigation Credit will be given only where the Division and another of the CFTC’s divisions – including, for example, the Division of Market Oversight, Division of Clearing and Risk, and Market Participants Division – find that the potential violation and its root cause have either been remediated or that the remediation plan in place is appropriate, given the facts and circumstances. In evaluating whether a Person engaged in substantial efforts to prevent a future violation, the Division will consider whether certain accountability measures were enacted, “gap analyses” were performed to identify similar potential violations, enhancements were made to policies and procedures, and certain accountability measures were implemented for responsible personnel or management.
III. The Mitigation Credit Matrix
Based on the aforementioned criteria, the Division will recommend a civil monetary penalty that may be subject to a discount as set forth by the Advisory in a first-of-its-kind Mitigation Credit Matrix. Nevertheless, the Division’s assessment of cooperation remains discretionary, and the Advisory should not be read to require the recommendation of the imposition or reduction of penalties based on the presence or absence of particular cooperation factors. Moreover, these discounts, should they be applied, will only offset civil monetary penalties, as opposed to discouragement or restitution.
IV. Further Guidance from the CFTC
The Advisory promises to be a significant step toward promoting compliance with the law and ensuring accountability for those in violation by upholding the principles of regulatory consistency, transparency and clarity. Acting CFTC Chair Caroline D. Pham celebrated the Commission’s adoption of a metric system in her statement embedded within the Advisory, noting that it will “enable the CFTC to do more with less” and allow the Commission to “focus relentlessly on catching fraudsters and scammers, helping victims, and promoting market integrity.”[2]
During her keynote address at the Futures Industry Association conference on March 11, 2025,[3] Acting Chair Pham remarked on the “overwhelmingly positive response” the Advisory received from the investing public, although certain questions remained on its implementation. While it is now the Division’s policy that self-reporting is permitted not only to the Enforcement Division, but other operating divisions at the Commission, Acting Chair Pham noted perceived inconsistencies in how material non-compliance issues have historically been referred for enforcement and thus, provided a number of clarifying remarks, including that the CFTC will issue a further advisory that will speak to materiality criteria for a CFTC operating division to consider. She believes this new advisory will (1) provide more clarity to Persons contemplating a self-report on a non-compliance issue without fear of a referral for enforcement action and (2) ensure the operating divisions will appropriately address supervisory of compliance issues that are not material directly with the registrant or entity. Escalation to the Enforcement Division is appropriate, however, in cases of material violations that involve willful misconduct or abuse; harm to clients, counterparties, or customers; or significant financial losses.
She further noted that in cases of material non-compliance issues concerning risk management programs or compliance program requirements, she believes that a referral to the Enforcement Division is appropriate where the conduct is “especially egregious” or there exists “prolonged systemic deficiencies, material weakness, or willful misconduct by management” so long as there is no material progress toward completion of a remediation plan for a specified number of years, depending on the size and complexity of the financial institution.
Acting Chair Pham also noted that questions have been raised on how the Mitigation Credit Matrix will operate, especially where, in recent years, the CFTC has dramatically increased the amount of civil monetary penalties levied against wrongdoers. Accordingly, Acting Chair Pham announced a 30-day compliance and remediation initiative or what she called, an “enforcement sprint,” where the CFTC will undertake a comprehensive review of open investigations and enforcement matters concerning compliance violations so that, at the very least, the CFTC can expeditiously resolve these matters to shift resources to policing fraud and abuse cases.
Although perception of the Advisory is seemingly favorable, Commissioner Kristin N. Johnson issued a statement[4] to express concerns, particularly as it implicates multiple CFTC divisions. Specifically, she noted that the Commission has a responsibility to offer “clear, consistent guidance” in light of the CFTC’s mandates pursuant to statute and regulation.
Conclusion
Market participants should be advised to update compliance programs, including relevant policies, to account for the Advisory and its enumerated expectations for self-reporting, cooperation and remediation. This includes enhancing specific policies and procedures to detect and investigate wrongdoing and assessing whether, pursuant to such investigation, a voluntary disclosure is warranted. Competent legal counsel should be considered in evaluating and/or enhancing current compliance programs to ensure regulatory guidance is appropriately taken into account. Additionally, it is critical that companies and individuals consult with counsel as soon as practical on whether to self-report after a potential violation is detected, especially where the CFTC will consider the timing of such reports.
It is important to keep in mind, however, that while the Advisory provides guidance on potential penalty reductions, there remains significant discretion in the calculation of those penalties. The Commission may apply the same principles and factors in calculating penalties, which may mean exemplary self-reporting and cooperation would result in a lower penalty with a higher discount applied. However, history has shown that there is some significant unpredictability in penalties, even under prior guidance. Market participants would be well advised to regularly monitor CFTC guidance to ensure ongoing compliance as implementation of this Advisory continues to crystallize.
The BakerHostetler White Collar, Investigations, and Securities Enforcement and Litigation team is composed of dozens of experienced individuals, including attorneys who have served in the U.S. Department of Justice and the U.S. Securities and Exchange Commission. Our team has extensive experience in defending regulatory investigations and actions and in providing regulatory compliance counseling. Please feel free to contact any of our experienced professionals if you have questions about this alert.
[1] Commodity Futures Trading Comm’n, CFTC Releases Enforcement Advisory on Self-Reporting, Cooperation, and Remediation (Feb. 25, 2025), https://www.cftc.gov/PressRoom/PressReleases/9054-25.
[2] Commodity Futures Trading Comm’n, CFTC Releases Enforcement Advisory on Self-Reporting, Cooperation, and Remediation (Feb. 25, 2025), https://www.cftc.gov/PressRoom/PressReleases/9054-25.
[3] Commodity Futures Trading Comm’n, Keynote Address by Acting Chairman Caroline D. Pham, FIA BOCA50 (Mar. 11, 2025), https://www.cftc.gov/PressRoom/SpeechesTestimony/opapham13.
[4] U.S. Comm. Fut. Trad. Comm’n, Public Statements & Remarks, Statement of Commissioner Kristin N. Johnson on the Enforcement Advisory on Self-Reporting, Cooperation and Remediation (Feb. 25, 2025), available at https://www.cftc.gov/PressRoom/SpeechesTestimony/johnsonstatement022525.
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