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Monthly Regulatory Summary (January 2022)

Monthly Regulatory Summary (January 2022)

CRC
No Comments
February 25, 2022

Monthly Regulatory Summary

As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of FINRA, SEC, and NFA notices and bulletins to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.

FINRA

Rule Filings

Per File No. SR-FINRA-2022-001, FINRA filed with the SEC a proposed rule change to extend temporary Supplementary Material .17 (Temporary Relief to Allow Remote Inspections for Calendar Years 2020 and 2021, and Through June 30 of Calendar Year 2022) under FINRA Rule 3110 (Supervision) to include calendar year 2022 inspection obligations through December 31, 2022 within the scope of the supplementary material. The proposed additional six-month extension of Rule 3110.17 is necessary to address the operational challenges resulting from the COVID-19 pandemic that many member firms continue to face in planning for and timely conducting, during the second half of calendar year 2022, the on-site inspection component of Rule 3110(c) (Internal Inspections) at locations requiring inspection in calendar year 2022.

FINRA has designated the proposed rule change as constituting a “non-controversial” rule change under paragraph (f)(6) of Rule 19b-4 under the Act, which renders the proposal effective upon receipt upon of the filing by the SEC.

At any time within 60 days of the filing of the proposed rule change, the SEC summarily may temporarily suspend such rule change if it appears to the SEC that such action is necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of the Act. If the SEC takes such action, the SEC shall institute proceedings to determine whether the proposed rule should be approved or disapproved.

Per File No. SR-FINRA-2022-002, FINRA is filing with the SEC a proposed rule change to amend FINRA Rule 7620A (FINRA/Nasdaq Trade Reporting Facility Reporting Fees) to modify the query fee applicable to non-retail participants that use the FINRA/Nasdaq Trade Reporting Facility Carteret (the “FINRA/Nasdaq TRF Carteret”) and the FINRA/Nasdaq Trade Reporting Facility Chicago (the “FINRA/Nasdaq TRF Chicago”) (collectively, the “FINRA/Nasdaq TRF”).

Regulatory Notices

Per Notice 22-01, FINRA issued this Notice to help firms review, reconcile and respond to their Final Statements in E-Bill as well as view the reports that are currently available in the Central Registration Depository (CRD) and Investment Adviser Registration Depository (IARD) systems for the annual registration renewal process.

The deadline to remit payment for any additional amounts owed and to report any discrepancies to FINRA was Jan. 28, 2022. It is critical that firms ensure they paid in full or reported discrepancies by this deadline.

Per Notice 22-02, FINRA has amended, with immediate effectiveness, the provisions of FINRA Rule 2251 regarding rates of reimbursement for expenses incurred in processing and forwarding proxy and other issuer-related materials. As specified in more detail within the Notice, the amendments apply the notice and access fees set forth under the rule to the distribution of investment company shareholder reports and further prohibit fees on accounts containing only shares that were transferred to the account holder by the member without charge. These amendments conform Rule 2251 to provisions in the New York Stock Exchange (NYSE) rules approved by the Securities and Exchange Commission (SEC).

The text of the rule change is available as Attachment A.

Per Notice 22-03, FINRA has adopted amendments to its rules to clarify the application of FINRA rules to security-based swaps (SBS):

  • FINRA has adopted a new Rule 0180 (Application of Rules to Security-Based Swaps), which, along with conforming amendments to Rule 9610 (Procedures for Exemptions—Application), became effective February 6, 2022. The new rule replaces the expiring temporary Rule 0180 and generally applies FINRA rules to members’ activities and positions with respect to SBS, with limited exceptions.
  • FINRA has amended its financial responsibility and operational rules, including Rule 4120 (Regulatory Notification and Business Curtailment), to conform to the Securities and Exchange Commission’s (SEC or Commission) SBS-related capital, margin and segregation requirements. These amendments became effective February 6, 2022.
  • FINRA has adopted a new SBS-specific margin rule, Rule 4240 (Security-Based Swap Margin Requirements), which replaces the expiring interim pilot program establishing margin requirements for credit default swaps (CDS). The new margin rule, along with related amendments to Rules 4210 (Margin Requirements) and 4220 (Daily Record of Required Margin), will become effective April 6, 2022.

The amended text of the rules is set forth in Attachment A.

Per Notice 22-04, FINRA issued this Notice toremind member firms of their obligation to execute marketable customer orders fully and promptly. FINRA also reminded firms of their obligation to ensure that their supervisory systems are reasonably designed to achieve compliance with this obligation.

Special Notices

There were no Special Notices in January.

SEC

Final Rules

There were no Final Rules in January.

Proposed Rules

Per Release No. 33-11013, the SEC proposed amendments to Rule 10b5-1 under the Securities Exchange Act of 1934. The proposed amendments would add new conditions to the availability of the affirmative defense under Exchange Act Rule 10b5-1(c)(1) that are designed to address concerns about abuse of the rule to opportunistically trade securities on the basis of material nonpublic information in ways that harm investors and undermine the integrity of the securities markets. The SEC also proposed new disclosure requirements regarding the insider trading policies of issuers, and the adoption and termination (including modification) of Rule 10b5‑1 and certain other trading arrangements by directors, officers, and issuers. In addition, the SEC proposed amendments to the disclosure requirements for executive and director compensation regarding the timing of equity compensation awards made in close proximity in time to the issuer’s disclosure of material nonpublic information. Finally, the SEC proposed amendments to Forms 4 and 5 to require corporate insiders subject to the reporting requirements of Exchange Act Section 16 to identify transactions made pursuant to a Rule 10b5-1(c)(1) trading arrangement, and to disclose all gifts of securities on Form 4.

Per Release No. IA-5950, the SEC proposed to amend Form PF, the confidential reporting form for certain SEC-registered investment advisers to private funds to require current reporting upon the occurrence of key events. The proposed amendments also would decrease the reporting threshold for large private equity advisers and require these advisers to provide additional information to the SEC about the private equity funds they advise. Finally, the SEC proposed to amend requirements concerning how large liquidity advisers report information about the liquidity funds they advise. The proposed amendments are designed to enhance the Financial Stability Oversight Counsel’s (“FSOC”)
ability to monitor systemic risk as well as bolster the SEC’s regulatory oversight of private fund advisers and investor protection efforts.

Per Release No. 34-94062, the SEC proposed to amend a rule which defines certain terms used in the statutory definition of “exchange” under Section 3(a)(1) of the Securities Exchange Act of 1934 (“Exchange Act”) to include systems that offer the use of non-firm trading interest and communication protocols to bring together buyers and sellers of securities. In addition, the SEC re-proposed amendments to Regulation ATS under the Exchange Act that were initially proposed in September 2020 for alternative trading systems (“ATSs”) to take into consideration systems that may fall within the definition of exchange because of the proposed amendments and operate as an ATS. The SEC re-proposed, with certain revisions, amendments to Regulation ATS for ATSs that trade government securities as defined under Section 3(a)(42) of the Exchange Act (“government securities”) or repurchase and reverse repurchase agreements on government securities (“Government Securities ATSs”) to: eliminate the exemption from compliance with Regulation ATS for an ATS that limits its securities activities to government securities or repurchase and reverse repurchase agreements on government securities (“repos”), and registers as a broker-dealer or is a bank; require Government Securities ATSs to file public revised Forms ATS-N, which would be subject to SEC review and effectiveness process, and would require a Government Securities ATS to disclose information about its manner of operations and the ATS-related activities of the registered broker-dealer or government securities broker or government securities dealer that operates the ATS and its affiliates; and apply the fair access rule to Government Securities ATSs that meet certain volume thresholds in U.S. Treasury Securities or in a debt security issued or guaranteed by a U.S. executive agency, or government-sponsored enterprise (“Agency Securities”). The SEC also proposed to amend Form ATS-N for NMS Stock ATSs, which would require existing NMS Stock ATSs to file an amendment to their existing disclosures. In addition, the SEC proposed to amend the Regulation ATS fair access rule. The SEC also proposed to require electronic filing of and to modernize Form ATS-R and Form ATS, which would require existing Form ATS filers to amend their existing disclosures. Further, the SEC re-proposed amendments to Regulation Systems Compliance and Integrity (“Regulation SCI”) to apply it to ATSs that meet certain volume thresholds in U.S. Treasury Securities or Agency Securities.

Per Release No. 34-94074, the SEC reopened the comment period for its proposal to implement Section 953(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”). The proposed rule would amend the current executive compensation disclosure rule to require a description of how executive compensation actually paid by a registrant related to the financial performance of that company (“Proposed Rules”). The Proposed Rules were first set forth in a release published in the Federal Register on May 7, 2015 (Release No. 34-74835) (“Proposing Release”), and the related comment period ended on July 6, 2015. The reopening of this comment period is intended to allow interested persons further opportunity to analyze and comment upon the Proposed Rules in light of developments since the publication of the Proposing Release and our further consideration of the Section 953(a) mandate, including by responding to the additional requests for comment included in this release.

Interim Final Rules

There were no interim final rules in January.

Interpretive Releases

There were no interpretive releases in January.

Policy Statements

There were no policy statements in January.

NFA

Notices to Members

Per Notice I-22-01: 

January 12, 2022

Member obligations under NFA Bylaw 1101 and Compliance Rule 2-36(d) with respect to CPOs/CTAs exempt from 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. Persons that fail to file the affirmation notice by March 1, 2022, 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 1, 2022, to complete the affirmation process, 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 March 31, 2022, 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.

How to identify whether an exempt CPO/CTA has affirmed its exemption

Members should compare their list of exempt CPO/CTAs with which the Member transacts customer business to the information NFA makes available to assist Members in determining whether an exempt CPO/CTA has affirmed its exemption(s).

Members can review exemption information in two ways. Members can view individual persons or entities by navigating to NFA's BASIC System, opening the person or entity's record, and, if applicable, clicking 'View All' in the Firm Exemptions box and/or the Pools & Pool Exemptions box. The Firm Exemptions page and/or the Pools & Pool Exemptions page will reflect an affirmation date if an exempt person or entity has properly filed a notice affirming an exemption, if applicable. Any exemption that was not affirmed in the previous year will no longer appear in BASIC.

Alternatively, Members can access a spreadsheet that includes a list of all persons or entities that have exemptions on file with NFA that must be affirmed on an annual basis. This spreadsheet, which is updated nightly, can be found in the Member's Annual Questionnaire which can be accessed by logging into the system. The spreadsheet includes all persons or entities with an exemption(s) that requires an annual affirmation, as well as the most recent affirmation date, if applicable, and the affirmation due date. If the affirmation due date is March 1, 2021, the exemption has not yet been affirmed. Once the exemption has been affirmed, the affirmation due date will change to March 1, 2022. Any exemptions not affirmed after March 1, 2022 will be withdrawn.

Expectations for Members transacting customer business with an exempt CPO/CTA that has not affirmed its exemption

NFA expects any Member transacting customer business with a person that previously claimed an exemption from CPO/CTA registration under the regulations listed above, and that has not filed a notice in NFA's Exemption System affirming the exemption, not filed a notice of exemption for another available exemption, or not properly registered and become an NFA Member by December 31, 2021, to promptly contact the person to determine whether the person intends to file a notice affirming the exemption.

If the Member learns that the person does not intend to file a notice affirming the exemption, or the person does not file a notice affirming the exemption by March 1, 2022, then the Member must promptly obtain a written representation as to why the person is not required to register or file a notice of exemption and evaluate whether the representation appears adequate. If the Member determines that this written representation is inadequate and the person is required to be registered, then the Member must put a plan in place (e.g., liquidation-only trades) to cease transacting customer business with the person or risk violating NFA Bylaw 1101 or Compliance Rule 2-36(d).

Any Member that acts in accordance with the information provided in this Notice will not be charged with violating NFA Bylaw 1101 or Compliance Rule 2-36(d). Members should be aware, however, that this Notice does not relieve their regulatory obligations pursuant to the Commodity Exchange Act and the CFTC's Regulations.

Per Notice I-22-02: 

January 13, 2022

Educational resources, common deficiencies and other important regulatory information for FCM, FDM and IB Members

This Notice covers educational resources, common deficiencies and links to Notices to Members regarding recent amendments to NFA Rules and Interpretive Notices.

Members Section of NFA's Website

From the Members section of NFA's website, Members can access information detailing their regulatory obligations including the following:

Futures Commission Merchants (FCM)

Forex Dealer Members (FDM)

Introducing Brokers (IB)

Regulatory Obligations Related to Common Deficiencies

The following section describes a number of regulatory obligations related to common deficiencies noted during NFA examinations of Member FCMs for which NFA is the DSRO, FDMs and IBs.

Self-Examination Questionnaire: NFA Members must annually review their operations using NFA's Self-Examination Questionnaire. This questionnaire is designed to aid Members in recognizing potential problem areas and to alert them to procedures that need to be revised or strengthened.

Supervision: Pursuant to NFA Compliance Rules 2-9 and 2-36, FCM, FDM and IB Members are required to diligently supervise their employees and agents in the conduct of their commodity interest activities. NFA expects firms to ensure that they have written supervisory policies and procedures to address the manner, frequency and results of monitoring written and oral communications. Such supervision includes, when required, maintaining a record of all oral and written communications provided or received concerning quotes, solicitations, bids, offers, instructions, trading and prices that lead to the execution of a transaction in a commodity interest and related cash or forward transaction, whether communicated by telephone, voicemail, facsimile, instant messaging, chat rooms, electronic mail, mobile device or other digital or electronic media. With respect to trading activity, firms should monitor to ensure any transfers or trades are not made to customers' detriment.

Third-Party Service Providers: Members that outsource regulatory functions must adopt and implement a written supervisory framework over outsourced functions to mitigate outsourcing-related risks pursuant to Interpretive Notice 9079. Firms must maintain records demonstrating that they have addressed the items outlined in the Interpretive Notice and are following their procedures.

Cybersecurity: FCM, FDM and IB Members must adopt a written information systems security program (ISSP) pursuant to Interpretive Notice 9070 to address the risk of unauthorized access to or attack of their information technology systems and to respond appropriately should unauthorized attacks occur. Members are also required to notify NFA of certain cybersecurity incidents related to their commodity interest activities via NFA's Cyber Notice Filing System. One common deficiency in this area is failure to provide cybersecurity training to employees upon hiring and annually thereafter.

Members that fail to establish and implement an ISSP may be subject to disciplinary action.

Notifications (FCMs only): Under certain circumstances, an FCM must transmit a notice filing (PDF) to NFA via WinJammerTM. For example, an FCM must notify its DSRO within 24 hours if it becomes the subject of a formal investigation by the SEC, a securities SRO or a futures SRO. An FCM must provide its DSRO a copy of any examination report issued to the FCM by the SEC or a securities SRO. An FCM must also provide notice of any correspondence received from the SEC or a securities SRO that raises issues with the adequacy of its capital position, liquidity to meet its obligations or ability to operate its business or internal controls.

Public Disclosures (FCMs only): Under CFTC Regulation 1.55, FCMs must provide disclosures on certain material business operations to customers prior to opening an account and must make those disclosures available to the general public. Firms must update this disclosure information, including any changes to the principals of the firm, as changes to firm operations arise.

Risk Management Programs (FCMs only): CFTC Regulation 1.11 requires FCMs that holds customer funds to establish, maintain and enforce a system of risk management policies and procedures designed to monitor and manage the risks associated with the FCM's activities. Firms must provide its senior management and its governing body with a quarterly Risk Exposure Report (RER), as well as interim RERs at any time the FCM detects a material change in the FCM's risk exposure. FCMs must file a copy of the quarterly RER and any interim RERs within five business days of providing the report to its senior management.

Ongoing Updates

On an ongoing basis, each NFA Member must update its Annual Questionnaire in the event of a material change to its operations. For example, if a Member begins soliciting for virtual currency or micro contract products or begins doing business, the Member must immediately update its Annual Questionnaire. Keeping the Annual Questionnaire up-to-date ensures firms receive all applicable notices relating to their reporting requirements in a timely manner and ensures that BASIC displays accurate information about firms' business activities when applicable.

Recent Amendments and Reminders

The Notice also provides additional links to certain Notices to Members regarding reminders and recent amendments to NFA Rules and Interpretive Notices.

Per Notice I-22-03: 

January 13, 2022

Educational resources, common deficiencies and other important regulatory information for CPO and CTA Members

This Notice covers educational resources, common deficiencies and links to Notices to Members regarding recent amendments to NFA Rules and Interpretive Notices.

Members Section of NFA's Website

From the Members section of NFA's website, Members can access information detailing their regulatory obligations including the following:

Commodity Pool Operators (CPO)

Commodity Trading Advisors (CTA)

Regulatory Obligations Related to Common Deficiencies

The following section describes a number of regulatory obligations related to common deficiencies noted during NFA examinations of CPO and CTA Members.

Self-Examination Questionnaire

NFA Members must annually review their operations using 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.

Third-Party Service Providers

Members that outsource regulatory functions must adopt and implement a written supervisory framework over outsourced functions to mitigate outsourcing-related risks pursuant to Interpretive Notice 9079. Firms must maintain records demonstrating that they have addressed the items outlined in the Interpretive Notice and are following their procedures.

Cybersecurity

CPO and CTA Members must adopt a written information systems security program (ISSP) pursuant to Interpretive Notice 9070 to address the risk of unauthorized access to or attack of their information technology systems and to respond appropriately should unauthorized attacks occur. Members are also required to notify NFA of certain cybersecurity incidents related to their commodity interest activities via NFA's Cyber Notice Filing System. One common deficiency in this area is failure to provide cybersecurity training to employees upon hiring and annually thereafter.

Members that fail to establish and implement an ISSP may be subject to disciplinary action.

Pool Financial Reporting—Notification Requirements

Notice Filing Requirements: CPOs are required to file notice with NFA when a market or other event affects a commodity pool's ability to fulfill its participant obligations. Notice must be filed by 5:00 p.m. CT the next business day following one of the events outlined in Compliance Rule 2-50 and Interpretive Notice 9080.

Changes in Fiscal Year End: If a CPO elects a fiscal year end other than the calendar year end for a pool, it must give written notice of the election to all participants and file notice with NFA via EasyFile pursuant to CFTC Regulation 4.22(g) within 90 calendar days after the pool's formation. If this notice is not given, the CPO will be deemed to have elected the calendar year end as the pool's fiscal year end. The CPO must continue to use the elected fiscal year end for the pool unless it provides written notice of any proposed change to all participants and files such notice with NFA via EasyFile at least 90 days before the change.

Changes in Certified Public Accountant (CPA): In the event that a CPO changes the independent CPA engaged to audit a pool's financial statements, the CPO must file notice with NFA via EasyFile pursuant to CFTC Regulation 1.16(g) no more than 15 days after the CPA's resignation or dismissal by the CPO.

Extension Requests: If a CPO requests an extension to file an annual pool financial statement, the extension must be filed with NFA via EasyFile prior to the due date of the filing.

Cessation of Trading: When a pool ceases trading, the CPO must promptly update the Annual Questionnaire. With few exceptions, a CPO must also distribute to participants a final Annual Report and file the Annual Report with NFA. This Annual Report is due within 90 days after the pool ceases trading, absent an extension.

Calculation of Financial Ratios

CPO and CTA Members must compute financial ratios using the accrual method of accounting and in accordance with U.S. generally accepted accounting principles or another internationally recognized accounting standard as outlined in Interpretive Notice 9071. Members should consult Notice I-18-20 for additional guidance on calculating these ratios.

Ongoing Updates

On an ongoing basis, each NFA Member must update its Annual Questionnaire in the event of a material change to its operations. For example, if a Member begins soliciting for virtual currency or micro contract products or begins doing business, the Member must immediately update its Annual Questionnaire. Keeping the Annual Questionnaire up-to-date ensures firms receive all applicable notices relating to their reporting requirements in a timely manner and ensures that BASIC displays accurate information about firms business activities when applicable.

Recent Amendments and Reminders

The Notice also provides additional links to certain Notices to Members regarding reminders and recent amendments to NFA Rules and Interpretive Notices.

Per Notice I-22-04: 

January 13, 2022

Educational resources, common deficiencies and other important regulatory information for SD Members

This Notice covers educational resources, common deficiencies and links to Notices to Members regarding recent amendments to NFA Rules and Interpretive Notices.

Members Section of NFA's Website

From the Members section of NFA's website, swap dealer (SD) Members can access information detailing their regulatory obligations including the following:

Regulatory Obligations Related to Common Deficiencies

The following section describes a number of regulatory obligations related to common deficiencies noted during NFA examinations.

Third-Party Service Providers: Members that outsource regulatory functions must adopt and implement a written supervisory framework over outsourced functions to mitigate outsourcing-related risks pursuant to Interpretive Notice 9079. Firms must maintain records demonstrating that they have addressed the items outlined in the Interpretive Notice and are following their procedures.

Cybersecurity: SD Members must adopt a written information systems security program (ISSP) pursuant to Interpretive Notice 9070 to address the risk of unauthorized access to or attack of their information technology systems and to respond appropriately should unauthorized attacks occur. Members are also required to notify NFA of certain cybersecurity incidents related to their commodity interest activities via NFA's Cyber Notice Filing System. Common deficiencies in this area include:

  • Failure to provide cybersecurity training to employees upon hiring and at least annually thereafter; and
  • Failure to establish appropriate identity and access controls to their systems and data.

Members that fail to establish and implement an ISSP may be subject to disciplinary action.

Daily Trading Records: SD Members are required to make and keep daily trading records of all swaps executed, including all documents on which transaction information is originally recorded, pursuant to CFTC Regulation 23.202.

Supervision: SD Members are required to have a supervisory program and must diligently supervise all activities relating to their business pursuant to CFTC Regulation 23.602.

Business Conduct Standards: SD Members are required to obtain and retain a record of essential facts to accurately categorize their counterparties to facilitate compliance with various regulatory requirements pursuant to CFTC Regulation 23.402. The failure to properly identify and classify counterparties may result in non-compliance with other transaction-specific requirements. Additionally, SD Members are required to make several disclosures to non-SD counterparties pursuant to CFTC Regulation 23.431. A common deficiency in this area is a failure to disclose material information and pre-trade mid-market marks to counterparties prior to entering into uncleared swap transactions.

Market Practice: SD Members are required to implement policies and procedures designed to prevent fraud, manipulation, and other abusive practices prohibited by CFTC Regulation 23.410. Additionally, SD Members are required to communicate with counterparties in a fair and balanced manner as detailed in CFTC Regulation 23.433. Common deficiencies in this area include:

  • Failure to implement adequate trade surveillance to detect fraud, manipulation and abusive practices; and
  • Failure to conduct communication surveillance reasonably designed to ensure fair and balanced communications and the prohibition of fraud, manipulation and other abusive practices.

Portfolio Reconciliation: SD Members must engage in portfolio reconciliation pursuant to CFTC Regulation 23.502. Firms are required to establish, maintain and follow written procedures to resolve discrepancies identified by portfolio reconciliation.

Swap Data Reporting: SD Members must report swap transaction data to swap data repositories pursuant to CFTC Regulation 23.204 and CFTC Regulation 23.205. Additionally, they must report corrections of identified errors or omissions as soon as technologically practicable (ASATP) after discovery. Common deficiencies in this area include:

  • Failure to report required regulatory messages, either at all or within the regulatory timeframes;
  • Failure to report accurately required data fields to the SDR; and
  • Failure to remediate errors and omissions ASATP after discovery.

Ongoing Updates

On an ongoing basis, each NFA Member must update its Annual Questionnaire in the event of a material change to its operations. For example, if a Member begins soliciting for virtual currency or micro contract products or begins doing business, the Member must immediately update its Annual Questionnaire. Keeping the Annual Questionnaire up-to-date ensures firms receive all applicable notices relating to their reporting requirements in a timely manner and ensures that BASIC displays accurate information about firms' business activities when applicable.

Recent Amendments and Reminders

The Notice also provides additional links to certain Notices to Members regarding reminders and recent amendments to NFA Rules and Interpretive Notices.

Recent CFTC Amendments

Capital Requirements: In July 2020, the CFTC approved its final rules for SD capital requirements. Pursuant to the final rules, SDs that are not subject to prudential regulation are required to compute regulatory capital using either standardized market and credit risk charges or internal models approved by the CFTC or NFA to calculate market and credit risk exposures. SDs electing to use internal models can use the net liquid assets method, the bank-based method, or the tangible net worth method to meet minimum capital requirements, based on the nature of their business. The compliance date for the new capital requirements was October 6, 2021.

Phase VI Margin Requirements: In December 2020, the CFTC approved its final rules for margin requirements for uncleared swaps for SD Members without a prudential regulator. The final rules include revisions to the calculation method for determining which entities are in the initial margin requirement scope for Phase VI and the timing for compliance with the initial margin requirements. Additionally, the final rules address minimum transfer amount rules for separately managed accounts and allows for separate minimum transfer amounts for initial and variation margin. Phase VI margin requirements begin on September 1, 2022.

Reporting Requirements: In September 2020, the CFTC approved its final rules for SD reporting. The final rules revise the current CFTC reporting requirements in order to improve the quality, accuracy, and completeness of the reporting data. The compliance date for the new reporting requirements is May 25, 2022.

News Releases

There were no NFA news releases in January.

Bottom of Form

Hot Issues

CyberCrime

Cybercrime is constantly developing. With attacks becoming more prevalent and sophisticated. Now is the time to perform a cybersecurity check for your firm to ensure not only compliance with industry standards, but confirm the firm’s ability to prevent, detect, and respond to evolving cyber threats. Prevention begins with training; make certain that in addition to proper security measures, applicable personnel has been rigorously trained with respect to information and technology security measures.

Regulatory Exam Preparedness

Regulators have been out in force throughout the pandemic and continue to do so. We have observed trends toward lengthy, deeper dive exams, conducted remotely. Firms should consider initiatives aimed at identifying and remediating regulatory gaps in their programs, particularly with respect to current exam focus area trends.

Our Perspective

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  

mavnet@compliance-risk.com

David Amster

p. (917) 568-6470

damster@compliance-risk.com

Sources:

  • FINRA January 2022 Industry Notices
  • FINRA Rule Filings
  • SEC Regulatory Actions
  • NFA Notices

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