CFTC Staff Letter 12-37: No-Action Relief for Family Office CPOs

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U.S. COMMODITY FUTURES TRADING COMMISSION
Three Lafayette Centre
1155 21st Street, NW, Washington, DC 20581
Telephone: (202) 418-5977
Facsimile: (202) 418-5407 gbarnett@cftc.gov
Division of Swap Dealer and
Intermediary Oversight
Gary Barnett
Director
CFTC Letter No. 12-37
No-Action
November 29, 2012
Division of Swap Dealer and Intermediary Oversight Re: Family Offices This letter is in response to written correspondence to and telephonic conversations with (together, “the Correspondence”) Division of Swap Dealer and Intermediary Oversight ( the “Division”) requesting that the Division address the rescission of Regulation 4.13(a)(4) 1 through the adoption of relief for certain family offices from Part 4 of the Commission’s Regulations. A family office is, generally, a professional organization that is wholly-owned by clients in a family and is exclusively controlled (directly or indirectly) by one or more members of a family and/or entities controlled by a family. Typically, a family office structure is employed when one or more direct members of a family create substantial wealth, and share that wealth in whole or in part with other members of that family, either through direct transfer, inheritance, or similar means. The family office is then used to provide personalized services to that family, including advice regarding issues of tax, estate planning, investment, and charitable giving. In February 2012, the Commission promulgated certain amendments to Part 4 of the Commission’s Regulations. 2 Notable, and at issue here, is the rescission of Regulation 4.13(a)(4), which had previously exempted from registration 3 Commodity Pool Operators (“CPOs”) who, inter alia, operated a pool for only those individuals who met a certain “qualified eligible person” standard. 4 In general, family offices relied on Regulation 4.13(a)(4) as an exemption from registration. Pursuant to these recent amendments, absent affirmative relief, many family offices would be required to register with the Commission as a CPO. The Correspondence asserts generally, that family offices are not operations of the type and nature that warrant regulatory oversight by the Commission. That is, because a family office is comprised of participants with close relationships, and there is a direct relationship between