As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly […]
As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of various FINRA, SEC, NFA, and FinCEN publications to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.
Regulatory Notices
Per Regulatory Notice 24-16, FINRA has amended its Code of Arbitration Procedure for Customer Disputes (Customer Code) to clarify and, in some instances, amend the applicability of the Document Production Lists to simplified customer arbitrations administered under Rule 12800.
The amendments are effective for arbitration cases filed on or after March 3, 2025.
The rule text is available in Attachment A.
Per Regulatory Notice 24-17, FINRA seeks comment on proposed amendments to FINRA Rules 5110 (Corporate Financing Rule—Underwriting Terms and Arrangements), 5121 (Public Offerings of Securities With Conflicts of Interest) and 5123 (Private Placements of Securities) to make substantive, organizational and terminology changes to the rules. The proposed amendments are in response to feedback FINRA received from Regulatory Notice 23-09 requesting comments on rules, operations and administrative processes impacting capital formation.
The proposed rule text marked to show changes from the current rule text is available in Attachment A.
Per Regulatory Notice 24-18, FINRAprovided updated guidance to members regarding SEA Rules 15c3-1, 15c3-3, 17a-5, Rule 204 under Regulation SHO, FINRA Rules 4210, 4230(b), 4521 and 4524, and Federal Reserve Board Regulation T in the event of an unexpected close of the securities markets. The Notice addresses, among other things, the circumstances under which the day of the unexpected close should be considered a regular business day versus a non-business day for purposes of these rules.
This Notice updates and replaces the guidance previously set forth in Regulatory Notice 18-39.
Final Rules
Per Release No. 33-11337, the SEC is adopting technical amendments to update information relating to its regional offices listed in the SEC’s Organization and Program Management regulations.
Per Release No. 33-11341, the SEC is adopting amendments to Volume II of the Electronic Data Gathering, Analysis, and Retrieval system Filer Manual (“EDGAR Filer Manual” or “Filer Manual”) and related rules and forms. EDGAR Release 24.4 will be deployed in the EDGAR system on December 16, 2024.
Per Release No. 33-11342, the SEC is amending its rules to require electronic filing or submission of certain forms and other filings or submissions that are required to be filed with or submitted to the SEC under the Securities Exchange Act of 1934 (“Exchange Act”) and the rules and regulations under the Exchange Act. The amendments require the electronic filing or submission on the SEC’s Electronic Data Gathering, Analysis, and Retrieval (“EDGAR”) system, using structured data where appropriate, for certain forms filed or submitted by self-regulatory organizations (“SROs”). The amendments require the information currently contained in Form 19b-4(e) to be publicly posted on the SRO’s website and remove the manual signature requirements for SRO proposed rule change filings. The SEC is also requiring that a clearing agency post supplemental material to its website. In addition, the SEC is amending rules under the Exchange Act and the Securities Act of 1933 (“Securities Act”) to require the electronic filing or submission on EDGAR, using structured data where appropriate, of certain forms, reports, and notices provided by broker-dealers, security-based swap dealers, and major security-based swap participants. The amendments also require withdrawal in certain circumstances of notices filed in connection with an exception to counting certain dealing transactions toward determining whether a person is a security-based swap dealer. Finally, the SEC is allowing electronic signatures in certain broker-dealer filings, and amending the Financial and Operational Combined Uniform Single Report (“FOCUS Report”) to harmonize with other rules, make technical corrections, and provide clarifications.
Per Release No. 34-102022, the SEC is adopting amendments to the broker-dealer customer protection rule to require certain broker-dealers to perform their reserve computations for accounts of customers and proprietary accounts of broker-dealers and make any required deposits into their reserve bank accounts daily rather than weekly. The SEC also is adopting amendments to the broker-dealer net capital rule and customer protection rule to permit certain broker-dealers that perform a daily reserve computation for accounts of customers to reduce aggregate debit items (i.e., customer-related receivables) by 2% rather than 3% as part of the computation. Finally, the SEC is adopting technical amendments to the Financial and Operational Combined Uniform Single Report (“FOCUS Report”) to conform it to the amendments with respect to the lowering the debit reduction from 3% to 2%.
Proposed Rules
There were no proposed rules in December.
Interim Final Rules
There were no interim final rules in December.
Interpretive Releases
There were no interpretive releases in December.
There were no policy statements in December.
Notices to Members
Notice I-24-19
December 2, 2024
Guidance on the annual affirmation requirement for entities currently operating under an exemption from CPO or CTA registration
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), 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) (collectively, exemption) to annually affirm the applicable notice of exemption within 60 days of the calendar year end, which is March 1, 2025, for this affirmation cycle.
Persons re-affirming an exemption under 4.13(a)(1), 4.13(a)(2), 4.13(a)(3) and 4.13(a)(5) will be required to attest that neither the person nor its principals has in its background any statutory disqualifications listed under Section 8a(2) of the Commodity Exchange Act.
Failure to affirm an active exemption from CPO or CTA registration will result in the exemption being withdrawn on March 3, 2025. For registered CPOs or CTAs, withdrawal of the exemption will result in the entity being subject to Part 4 Requirements regardless of whether the entity otherwise remains eligible for theexemption. For non-registrants, the withdrawal of the exemption may subject the person or entity to enforcement action by the CFTC, if either continues to operate without registration or exemption.
To complete the affirmation process, access the Exemptions System from the Electronic Filing Systems page on NFA's website.
Once an authorized user is logged into the system, that individual will be directed to the Exemptions Index, which lists all firm level (at the top) and pool level (at the bottom) exemptions on file with NFA. Exemptions requiring affirmation will be identified with an icon in the "Affirm" column. After clicking on the icon, a pop-up box will appear requesting affirmation that the exemption continues to be effective. By clicking "OK," the current date will replace the "Affirm" icon and complete the affirmation requirement for the given exemption for the year.
The Exemptions System also allows users to simultaneously affirm multiple exemptions.
To verify that all of the relevant exemptions have been affirmed, check that a date appears in the "Affirm" column next to the applicable firm or pool in NFA's Exemptions System.
See the Notice to Members for frequently-asked questions about exemptions.
Notice I-24-20
December 3, 2024
CPO Members—Reminder to report beneficial ownership information to FinCEN by January 1, 2025
Last year, NFA issued a Notice to Members regarding a final rule issued by the Financial Crimes Enforcement Network (FinCEN) establishing beneficial ownership information (BOI) reporting requirements for existing and newly formed corporations, limited liability companies and similar entities (collectively referred to as a "reporting company"). As a reminder, NFA Member commodity pool operators (CPO) that operate a commodity pool created or registered to do business before January 1, 2024 must file a report with FinCEN by January 1, 2025 identifying their BOI, unless the commodity pool qualifies for an exemption under the Corporate Transparency Act (Act). Generally, BOI refers to identifying information about the individuals who directly or indirectly own or a control a reporting company.
FinCEN's final rule implements the Act's beneficial ownership reporting provisions. Under the Act, CFTC-registered entities are exempt from the reporting requirement. However, a pooled investment vehicle (PIV), such as a commodity pool, will be required to comply with FinCEN's reporting rule unless it qualifies for another exemption under the Act. Importantly, the Act exempts from the BOI reporting requirement any PIV operated or advised by an SEC-registered broker dealer (BD) or investment advisor (IA). As a result, a commodity pool operated or advised by an SEC-registered BD or IA is exempt from the reporting requirement.
However, NFA Member CPOs that operate a commodity pool that does not qualify for an exemption under the Act must report BOI to FinCEN for any commodity pools they operate in accordance with the following deadlines.
For more information regarding FinCEN's BOI reporting rule, including how to file a BOI report, NFA encourages CPO Members to consult FinCEN's dedicated BOI webpage, which contains reference materials and additional resources concerning BOI and reporting obligations.
Notice I-24-21
December 10, 2024
FCM and RFED filing requirements for Christmas and New Year's Day—Reminder for upcoming holidays
This is a reminder that the following futures commission merchant (FCM) and retail foreign exchange dealer (RFED) regulatory filings will be impacted as follows by the Christmas and New Year's Day holidays:
Christmas Day—Wednesday, December 25, 2024
New Year's Day—Wednesday, January 1, 2025
Any information filed by FCMs or RFEDs after its due date must be accompanied by a fee for each business day that it is late.
Holiday Filing Schedule
Visit NFA's website to view a complete schedule of daily filing requirements for upcoming holidays and an updated calendar of Segregated Investment Detail Report (SIDR) due dates. NFA recommends viewing the calendars and keeping this Notice as a reference for the upcoming 2025 holiday filing requirements.
For more information about filing financial reports, including monthly financial reports, visit NFA's website.
Notice I-24-22
December 10, 2024
SD holiday filing requirements
Visit NFA's website to view schedules of 2025 swap dealer (SD) holiday filings, risk data and margin monitoring filings and financial reporting due dates. We recommend viewing the schedules and keeping this Notice as a reference for the upcoming 2025 holiday filing requirements.
For more information about SD filing requirements, visit NFA's website.
Notice I-24-23
December 11, 2024
FinCEN issues alert on fraud schemes involving deepfake media and customer identification documents
The Financial Crimes Enforcement Network (FinCEN) recently issued an alert to help U.S. financial institutions identify fraud schemes associated with the use of deepfake media created with generative artificial intelligence tools. FinCEN has observed an increase in suspicious activity reporting describing criminals altering or creating fraudulent identification documents to circumvent identity verification and authentication methods. NFA Member futures commission merchants (FCM) and introducing brokers (IB) should carefully review the alert in connection with their customer identification program (CIP) for guidance on detecting fraudulent customer identification documents created with generative artificial intelligence tools. Other NFA Members may find the alert information helpful for their customer due diligence programs.
In addition to the helpful guidance regarding fraud schemes, the alert provides:
Notice I-24-24
December 16, 2024
CPO Members—Update Regarding FinCEN beneficial ownership information reporting requirements
On December 3, 2024, NFA issued a Notice to Members reminding NFA Member commodity pool operators (CPO) of certain compliance deadlines related to the Financial Crimes Enforcement Network's (FinCEN) beneficial ownership information (BOI) requirements. Subsequently, a federal district court in the Eastern District of Texas issued an order that granted a nationwide preliminary injunction temporarily staying those compliance deadlines.
Therefore, NFA encourages CPO Members to review FinCEN's update on its dedicated BOI webpage concerning the preliminary injunction. NFA also suggests CPO Members monitor and consult this website, which contains reference materials and additional resources.
NFA News Releases
There were no NFA News Releases in December.
FinCEN News Releases
FinCEN Joins Agencies in Issuing A Statement on Elder Financial Exploitation
December 04, 2024
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has joined five federal financial regulatory agencies and state financial regulators in issuing a statement today to provide supervised institutions with examples of risk management and other practices that may be effective in combatting elder financial exploitation. Older adults who experience financial exploitation can lose their life savings and financial security and face other harm. A FinCEN Financial Trend Analysis of Bank Secrecy Act reports over a one-year period ending in June 2023 found that about $27 billion in reported suspicious activity was linked to elder financial exploitation.
Statement: https://fincen.gov/sites/default/files/2024-12/Interagency-Statement-on-EFE-FINAL-508C.pdf
FinCEN Issues Spanish Translations of Alert and In-Depth Analysis on Nationwide Surge in Mail Theft-Related Check Fraud Schemes Targeting the U.S. Mail
December 11, 2024
Today, the Financial Crimes Enforcement Network (FinCEN) is issuing Spanish translations of its February 2023 alert to financial institutions on the nationwide surge in check fraud schemes targeting the U.S. Mail and its September 2024 Financial Trend Analysis (FTA) on mail theft-related check fraud incidents based on Bank Secrecy Act data filed in the six months following the publication of the alert. These translations are intended to further support financial institutions located in predominantly Spanish speaking communities and support law enforcement’s outreach to such communities impacted by this fraud.
Fraud, including check fraud, is the largest source of illicit proceeds in the United States and is one of FinCEN’s Anti-Money Laundering/Countering the Financing of Terrorism National Priorities.
Financial institutions with questions about the content of the alert and FTA should contact FinCEN’s Regulatory Support Section at frc@fincen.gov.
Financial Trend Analysis: https://fincen.gov/sites/default/files/2024-12/FTA-Check-Fraud-Translation-FINAL508.pdf
FinCEN Warns of Fraud Schemes That Abuse Its Name, Insignia, and Authorities for Financial Gain
December 18, 2024
WASHINGTON—The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued an alert today to raise awareness of fraud schemes abusing FinCEN’s name, insignia, and authorities for financial gain. These FinCEN-specific fraud schemes include scams that exploit beneficial ownership information reporting; misuse FinCEN’s Money Services Business Registration tool; or involve the impersonation of, or misrepresent affiliation with, FinCEN and its employees.
“We are very concerned about reports of scammers using FinCEN’s name to perpetrate fraud schemes against the public for financial gain,” said FinCEN Director Andrea Gacki. “We urge the public to be vigilant in identifying and avoiding these schemes and to be extremely cautious when dealing with unsolicited correspondence. FinCEN and its employees will never threaten a member of the public by email, call, or text, or demand immediate payment for any reason.”
The alert provides guidance to the public on how to identify and avoid these scams and provides typologies and red flag indicators to help financial institutions detect, prevent, and report potential suspicious activity to FinCEN. Combating fraud is one of FinCEN’s Anti-Money Laundering and Countering the Financing of Terrorism National Priorities.
The public is reminded that any solicitations from individuals or entities abusing FinCEN’s name, insignia, or authorities, or impersonating a FinCEN employee should be reported to Treasury’s Office of Inspector General and the Federal Trade Commission. Victims of cyber-enabled government imposter scams should file a complaint with the Federal Bureau of Investigation’s (FBI) Internet Crime Complaint Center and file a report with their nearest FBI field office. Anyone with knowledge of fraud schemes involving victims who are age 60 or older can call the U.S. Department of Justice’s National Elder Fraud Hotline at 833-FRAUD-11 or 833-372-8311.
Questions regarding the contents of this alert should be sent to the FinCEN Regulatory Support Section by submitting an inquiry at www.fincen.gov/contact.
The full alert is available online at FIN-2024-Alert005.
Regulators continue to demonstrate their commitment to protecting investors by aggressively pursuing bad actors and reviewing and updating regulations to guard investors against constantly evolving threats.
The best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of statements and guidance released by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam. Rather than scrambling to rectify issues or meet deadlines, a thorough, active compliance program that considers and incorporates regulatory developments is in a better position to satisfy regulators and preserve operations so they can best serve their clients.
For more information, please contact:
Mitch Avnet
p. (646) 346-2468
David Amster
p. (917) 568-6470
Sources: