COVID-19 and business continuity: Not U.S. futures regulators' first disaster

June 2021 The Journal on the Law of Investment & Risk Management Products

Home Publikationen COVID-19 and business continuity: Not U.S. futures regulators' first disaster

Even though the severity of business and social disruption caused by the COVID-19 pandemic¹is unprecedented, the occurrence of disruption itself is not entirely unexpected. These events (i.e., disruptions) continue to happen with increasing frequency and severity, making it a near certainty that disruptive events will happen again in the future, and industry participants should expect the unexpected.² In response to the recurring disruptions over the past two decades, U.S. and global regulators have made several recommendations and promulgated regulatory and compliance obligations that require market participants to design and implement business continuity and disaster recovery (BCDR) plans, as well as corresponding policies and procedures.

The COVID-19 pandemic, of course, stands out from previous disruptions in both its severity and scope of global impact.³ The purpose of this paper is to analyze specific actions taken by U.S. derivative regulators in response to the COVID-19 pandemic and how businesses and regulators responded to this unprecedented challenge within the framework of already established BCDR guidelines. The author concludes the paper with several suggestions as to how existing BCDR requirements should be updated, promulgated, or revised with a focus on the jurisdictional scope of the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA).⁴ As suggested in this paper, BCDR preparedness needs to apply equally to those regulated by the CFTC and the NFA (and by other self-regulatory organizations (SROs)), as well as the regulators themselves-i.e., the CFTC, the NFA and the SROs.

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The World Health Organization declared the coronavirus disease 2019 (COVID-19) outbreak a global pandemic on March 11, 2020.
Over roughly the last two decades: Asian and emerging markets collapsed in 1997-98, requiring massive IMF bailouts with ripple effects in U.S. financial markets causing the LTCM hedge fund collapse of 1998, which resulted in a bailout engineered by the U.S. Treasury Department and Federal Reserve Bank of New York; the September 11, 2001 World Trade Center attacks caused the loss of life and disrupted operations of several financial firms; Hurricane Katrina (Aug. 2005) caused multibillion dollar damages to the New Orleans economy and infrastructure; the 2008 financial crisis rendered numerous U.S. financial institutions insolvent and severely disrupted payment systems; Hurricane Sandy (Oct. 2012) shut down New York, disabled lower Manhattan and all but destroyed the records of DTCC; Hurricane Harvey (Aug. 2017) shut down the greater Houston metropolitan area making its infrastructure inoperable; and of course the 2019/ 20/21 COVID pandemic, the 2021 freeze in Houston and the ransomware cyberattack on Colonial Pipeline in May 2021. Of course, the escalating global climate change is a disaster of a continuous and pervasive impact that is also manifesting itself in numerous smaller, but incrementally significant events impacting U.S. and global financial markets.
In 2020 alone, mortality in the U.S. increased 33% from the previous year; 42% of U.S. households either lost a job or got a pay cut; and over half of the world population was placed under lock-down/stay-at-home orders.
This paper considers only BCDR planning and guidance set forth by the CFTC and the NFA and excludes other U.S. agencies and bodies (such as the SEC and Prudential Regulators).

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