Sec. 405. Supervision of affiliates
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The Commodity Exchange Act ( 7 U.S.C. 1 et seq. ) (as amended by section 404(a)) is amended by inserting after section 5i the following: In this section, covered affiliate means, based on the totality of the facts and circumstances as determined by the Commission, a person with a substantial legal or financial relationship to an entity registered under this Act that is primarily engaged in crypto asset activities, based on the following factors: The degree to which conflicts of interest may be present, or the financial interests of the entity may come into conflict with the fiduciary duty of the entity to customers or the prudent operation of the entity.
The legal relationship between the entity and the affiliate. The overall financing requirements of the entity and the affiliate, and the degree, if any, to which the entity and the affiliate are financially dependent on each other. The degree, if any, to which the entity or its customers rely on the affiliate for operational support or services in connection with the business of the entity. The level of market, credit, or other risk present in the activities of the affiliate.
The extent to which the affiliate has the authority or the ability to cause a withdrawal of capital from the entity. Any other factor determined by the Commission by rule to be material. In consultation with an entity registered under this Act, not later than 1 year after the date of enactment of this section, and not less frequently than 90 days before the examination of an entity by the Commission or a customer protection and market integrity authority registered under section 9809 of title 31, United States Code, the Commission shall designate the covered affiliates of the entity.
Each covered affiliate of the entity shall be required to provide to the Commission, by not later than the date on which an examination of the entity by the Commission or a customer protection and market integrity authority registered under section 9809 of title 31, United States Code, begins, the following: A description of all activities the affiliate is engaged with relating to the entity. The most recent audited financial statements of the affiliate. All legal agreements entered into between the affiliate and the entity.
A description of all transactions between the affiliate and the entity since the last examination. Any other information that may be determined to be material by the Commission. If the Commission finds that it is in the public interest and has good cause to believe it is necessary to protect the customers of an entity registered under this Act that is primarily engaged in crypto asset activities, the Commission may, by order— conduct an examination of a covered affiliate; require a person with control of an entity to divest or sever their relationship with the entity; or limit covered affiliates from providing services to an entity or entering into legal relationships or specified transactions with an entity.
Not later than 18 months after the date of enactment of this section, the Commission shall issue rules to implement this section. .
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Sec. 405
Supervision of affiliates
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