The Compliance and Regulatory Consulting practice highlights regulatory information relating to the NFA from the first quarter of 2020.
Educational Resources, Common Deficiencies and Other Important Regulatory Information for CPO and CTA Members
According to the NFA’s notice to members released on February 10, 2020, common deficiencies noted during NFA examinations include cyber security, supervision, self-examination questionnaire, notification and calculation of financial ratios.
Commodity pool operators (CPO) and commodity trading advisors (CTA) “members must adopt a written information systems security program (ISSP) to address the risk of unauthorized access to or attack of their information technology systems and to respond appropriately should unauthorized attacks occur. Changes to Interpretive Notice 9070, which became effective April 1, 2019, require firms to notify the NFA of certain cyber security incidents related to their commodity interest business and also clarify that cyber security training must be provided to employees upon hiring and annually thereafter.”
“CPO members must establish an internal control system and maintain written policies and procedures in accordance with NFA Interpretive Notice 9074. Firms should update the policies and procedures for any changes in processes or personnel.”
“NFA members must annually review their operations using the NFA's self-examination questionnaire. This questionnaire is designed to aid members in recognizing potential problem areas and to alert them to procedures that must be revised or strengthened.”1
Read more here.
Member Obligations Under NFA Bylaw 1101 and Compliance Rule 2-36(d) Regarding COPs/CTAs Exempt from Registration
Announced on January 15, 2020, “The CFTC requires any person that claims an exemption from CPO registration under CFTC Regulation 4.13(a)(1), 4.13(a)(2), 4.13(a)(3) and 4.13(a)(5), an exclusion from CPO registration under CFTC Regulation 4.5 or an exemption from CTA registration under 4.14(a)(8) to annually affirm the applicable notice of exemption within 60 days the calendar year-end. Persons that fail to file the affirmation notice by March 2, 2020 will be deemed to have requested a withdrawal of the exemption and, therefore, may be required to be registered and NFA members.”
“Since exempt CPOs/CTAs have until March 2, 2020 to complete the affirmation process, the NFA recognizes that it may be difficult for a member to conclusively determine prior to that date whether a previously exempt CPO/CTA continues to be eligible for a current exemption.”
“Therefore, members that take reasonable steps to determine the registration and membership status of these previously exempt persons will not be in violation of NFA Bylaw 1101 or Compliance Rule 2-36(d) if, between January 1 and April 1, 2020, they transact customer business with a previously exempt person that fails to become registered and an NFA member, file a notice affirming its exemption from CPO/CTA registration or provide a written representation as to why the person is not required to register or file the notice affirming the exemption.”2
Read more here.
NFA’s Swaps Proficiency Requirements Effective January 31, 2020
The NFA's Swaps Proficiency Requirements launched and became accessible online on January 31, 2020. Each individual who is approved as a swap associated person (AP) at a futures commission merchant (FCM), introducing broker (IB), commodity pool operator (CPO) or commodity trading advisor (CTA) member firm or is acting as an AP at a swap dealer (SD) must satisfy the requirements to remain an approved swap AP or continue acting as an AP at an SD after January 31, 2021.
Following January 31, 2021, any individual who wants to engage in swaps activity will need to satisfy the requirements prior to being approved as a swap AP at an FCM, IB, CPO or CTA member or acting as an AP at an SD.
Read more here.