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Do Corporate Treasurers Need Derivatives Compliance Policies?

The Dodd-Frank Act creates a number of new sources of potential liability for derivatives end users. A compliance program can help reduce the risk.

By Nathan Howell, Michael Sackheim | Updated on February 05, 2015
The Dodd-Frank Act created a new and complex regulatory regime for derivatives trading. Since the law’s passage, regulators have adopted a myriad of new trading, reporting, recordkeeping, clearing, trade execution, margin, and anti-fraud rules. With these new rules come a plethora of opportunities for companies that trade derivatives to be held liable for violations. That’s why every commercial entity that uses the derivatives markets for risk management purposes should implement a derivatives compliance program.

A compliance program will help create and preserve a culture of integrity within the organization. It will also demonstrate to regulatory and law enforcement authorities—and investors—that if a derivatives trading issue does occur, the event is anomalous and does not constitute wrongdoing by the company. Keep in mind that an organization can be found liable for misconduct on the part of individual employees or other agents of the organization. Proper internal controls, including a well-designed derivatives compliance program, can help an organization avoid such liabilities.

A derivatives compliance policy should address regulatory compliance issues in the following areas:

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