This week the CFTC announced a staff advisory letter setting out the Division of Enforcement's (DOE) new policy on enforcement cooperation (click here).
The staff advisory sets out the DOE's new policy for evaluating cooperation when considering declinations (i.e. a formal decision taken not to enforce a given matter) or making enforcement recommendations to the Commission. It explains the DOE's approach to assessing self-reports, cooperation, remediation, restitution and disgorgement, and supersedes all prior policies on these subjects.
Notably, the policy underwent a major revision in early 2025 under the stewardship of the then Acting Chair Caroline Pham and Brian Young, the previous Director of the DOE (click here). The 2025 advisory introduced a "matrix" approach to determine mitigation credit and discounts to penalties based on the timeliness of self-reporting and the level of cooperation provided by the subject. The revised policy has dropped the matrix and places a higher premium on self-reporting but retains some flexibility to reduce penalties even in the absence of self-reporting.
According to the policy itself, it is intended to drive the early voluntary self-reporting of violations, promote timely and effective enforcement of the Regulations, reduce market harm from violations, facilitate prompt remedial action and provide a transparent description of the DOE's policies and decision-making process. The eight-page advisory outlining the new policy may be found here.
At its core, the policy sets out five factors that must be met to secure a declination:
The first being that a party voluntarily self-reports the matter to the CFTC.
The second, that a party provides full cooperation during the DOE's investigation.
The third, that a party effects timely and appropriate remediation of the misconduct.
The fourth, that a party provides full restitution and/or disgorgement where applicable.
The fifth, an overriding factor, is that there are no aggravating circumstances that preclude eligibility.
Regarding the fifth factor, this is largely limited to pervasive intentional or reckless misconduct by senior management, intentional or reckless misconduct over an extended period of time, recidivist intentional or reckless misconduct, or misconduct causing egregious aggregate harm.
The DOE still has discretion to refrain from recommending an enforcement action based on balancing the severity of the aggravating circumstances against the first four factors however. The advisory also notes that the DOE may grant a declination either before or after any required implementation of remediation measures or payment of restitution (or disgorgement) depending on the circumstances.
Note that the defined terms starting on page 4 of the advisory letter are critical for interpreting the CFTC’s revised policy.
Regarding the treatment of cases with insufficient voluntary self-reporting or with significant aggravating factors, the guidance states that where the party has provided full cooperation, timely and appropriate remediation and full restitution and/or disgorgement, the DOE will incorporate cooperation credit into its recommendation via a reduction to the calculated penalty of at least 50% where a good faith self-report did not qualify as a voluntary self-report, or at least 25% where aggravating factors are involved. In either case, the reduction is limited to a maximum of 75%. In cases where a firm is ineligible for either a declination or a penalty reduction as described above, the DOE still has discretion to award cooperation credit and a discount not exceeding 25% for any self-reporting and/or cooperation provided. This will only be considered however when the firm has engaged in timely and appropriate remediation and provided full restitution and/or disgorgement.
The new guidance moves away from the previous tiered matrix and essentially replaces it with three bands of potential penalty relief with discounts ranging from 25% to 75%. Under this structure, relief is more tied to satisfying the remediation and restitution pillars rather than to subjective cooperation assessments such as "excellent" or "exemplary" cooperation under the previous guidance. Pages 4 to 7 set out the definitions of the four pillars of the new guidance, namely voluntary self-report, full cooperation, timely and appropriate remediation and full restitution and/or disgorgement. These are reasonably granular definitions and are a key reference under the new guidance, which should be reviewed directly by those falling within the scope of the CFTC's regulatory jurisdiction.