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
Regulatory Notices
Per Notice 23-01, FINRA’s Renewal Program supports the collection and disbursement of fees related to the renewal of broker-dealer (BD) and investment adviser (IA) registrations, exempt reporting and notice filings with participating self-regulatory organizations (SRO) and jurisdictions. During this program, FINRA announces renewal fees BD and IA firms owe via Preliminary Statements issued in November. FINRA publishes Final Statements in January to confirm or reconcile the actual renewal fees BD and IA firms owe after Jan. 1, 2023.
FINRA is issuing 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 is Jan. 27, 2023. It is critical that firms ensure they pay in full or report discrepancies by this deadline. More information about reporting discrepancies, as well as key dates, is in the Notice.
Per Notice 23-02, FINRA has adopted amendments to Rule 2231 (Customer Account Statements) to add eight new supplementary materials pertaining to:
Several of these new supplementary materials are derived largely from Temporary Dual FINRA-NYSE Rule 409T (Statements of Accounts to Customers) and Temporary Dual FINRA-NYSE Rule Interpretation 409T (together, the NYSE provisions).
These changes become effective on January 1, 2024.
The amended rule text is available in Attachment A.
Special Notices
There were no special notices in January.
SEC
Final Rules
Per Release No. 33-11143, the SEC is publishing this notice (the “Notice”) pursuant to the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the “2015 Act”). This Act requires all agencies to adjust annually for inflation the civil monetary penalties that can be imposed under the statutes administered by the agency and publish the adjusted amounts in the Federal Register. This Notice sets forth the annual inflation adjustment of the maximum amount of civil monetary penalties (“CMPs”) administered by the Commission under the Securities Act of 1933, the Securities Exchange Act of 1934 (the “Exchange Act”), the Investment Company Act of 1940, the Investment Advisers Act of 1940, and certain penalties under the Sarbanes-Oxley Act of 2002. These amounts are effective beginning on January 15, 2023, and will apply to all penalties imposed after that date for violations of the aforementioned statutes that occurred after November 2, 2015.
Proposed Rules
Per Release No. 33-11151, the SEC is revising and re-proposing a rule that was initially proposed in September 2011 that would implement a provision under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”) prohibiting an underwriter, placement agent, initial purchaser, or sponsor of an asset-backed security (including a synthetic asset-backed security), or any affiliate or subsidiary of any such entity, from engaging in any transaction that would involve or result in certain material conflicts of interest.
Per Release No. 34-96768, the SEC, with the concurrence of the Office of Government Ethics (“OGE”), is jointly issuing with OGE this proposed rule for Commission members and employees. This proposed rule would amend the existing Supplemental Standards of Ethical Conduct for Members and Employees of the SEC (“Supplemental Standards”) jointly issued by SEC and OGE, would supplement the Standards of Ethical Conduct for Employees of the Executive Branch (OGE Standards) issued by OGE, and is necessary and appropriate to address ethical issues unique to the SEC. The SEC is proposing to revise transaction and reporting requirements for certain assets that pose a low risk of conflicts of interest or appearance concerns, and to prohibit employee ownership of sector funds that have a stated policy of concentrating their investments in entities directly regulated by the SEC. Further, the SEC proposes to authorize collection of covered securities transactions and holdings data from financial institutions through a third-party automated compliance system. The SEC also proposes to correct certain technical matters and adjust its transaction and reporting requirements to provide the flexibility necessary to implement a third-party automated compliance system.
Interim Final Rules
There were no interim final rules in January.
Interpretive Releases
There were no interpretive releases in January.
There were no policy statements in January.
NFA
Notice I-23-01
January 4, 2023
Notice of Annual Meeting of NFA Members and Board and Nominating Committee Selection
Notice of Annual Meeting
NFA will hold its Annual Meeting of Members on Tuesday, February 7, 2023 at 12:00 p.m. (CST), via video conferencing. The agenda of the meeting is:
To register for the Annual Meeting of Members, please email your name, NFA ID and contact email to MemberMeeting2023@nfa.futures.org. Registration is due by Tuesday, January 31, 2023. NFA will then provide you with information on accessing the Annual Meeting.
Board and Nominating Committee Election
On November 10, 2022, NFA notified all Members of the candidates that the 2022 Nominating Committee nominated for election to NFA's Board of Directors and 2023 Nominating Committee and advised Members of the procedures by which additional candidates could petition to be nominated for election (NTM I-22-22). No Members have petitioned for nomination of a candidate for election to the Board or Nominating Committee. Accordingly, NFA's Executive Committee, pursuant to Article VII, Section (3)(c) and Article X, Section 3 of NFA's Certificate of Incorporation, will elect the nominees to the Board and Nominating Committee in January 2023.
Notice I-23-02
January 10, 2023
Executive Representative Reminder and Proposed Amendments to NFA's Articles of Incorporation Relating to NFA's Governance
Executive Representative Reminder
As discussed more fully below, NFA's Board of Directors (Board) recently approved unanimously amendments to NFA's Articles of Incorporation (Articles). NFA's Articles require that these amendments be submitted to a vote of the Members and adopted upon the affirmative vote of the majority of those Members that cast a vote in each Member Category—FCM/IB, CPO/CTA, SD/MSP/RFED and Contract Market. NFA utilizes an electronic voting process for Member approval of amendments to NFA's Articles. NFA has engaged Corporate Election Services (CES) to administer the electronic voting process. To facilitate the electronic voting process, CES will send the voting materials to each Member's designated Executive Representative who has the Member's sole authority to sign and complete proxy cards and provide voting instructions and cast votes on behalf of the Member.
If a Member has already designated an Executive Representative, it is not necessary to do so again unless the person designated as the Executive Representative has changed. Any Member that needs to designate or change its Executive Representative should do so through NFA's website by accessing NFA's Executive Representative Contact form found on NFA's Electronic Filing Systems page. Only firm employees who are Security Manager(s) or are authorized to "View, Update, and File" information in ORS may complete this form. Any addition or change must be made by January 16, 2023.
If a Member does not have a designated Executive Representative by January 16, 2023, NFA will deem the Membership Contact listed on the Member's Form 7-R as the Member's Executive Representative, and that person will have the sole authority to cast votes on the Member's behalf. Votes submitted by any person other than the Executive Representative (or the Membership Contact if no Executive Representative is designated) will not be counted.
Notice I-23-03
January 23, 2023
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, 2023, 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, 2023, 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, 2023, 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 as of March 2, 2023.
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, 2023 the exemption has not yet been affirmed. Once the exemption has been affirmed, the affirmation due date will change to February 29, 2024. Any exemptions not affirmed after March 1, 2023, 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, 2022, 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, 2023, 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.
News Releases
January 12, 2023
NFA orders Chicago, IL swap dealer StoneX Markets LLC to pay a $1,000,000 fine
NFA has ordered Chicago, Illinois swap dealer Member StoneX Markets LLC (Stone) to pay a $1,000,000 fine.
The Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Stone. In the settlement offer, the firm neither admitted nor denied the allegations in the Complaint.
In its Decision, the BCC found that Stone violated NFA Compliance Rule 2-4 by failing to provide timely and complete disclosure to its counterparties that the firm was not calculating initial margin (IM) according to its customary procedures; violated NFA Compliance Rule 2-49(a) by failing to maintain and enforce an adequate risk management program with respect to the firm's value-at-risk calculation and daily IM determination, and by failing to retain required records and provide pre-trade mid-market marks to counterparties; and violated NFA Compliance Rules 2-9(d) and 2-49(a) by failing to supervise the firm's operations.
The complete text of the Complaint and Decision can be viewed on NFA's website.
Hot Issues
In January, the 2023 Report on FINRA’s Examination and Risk Monitoring Program was published. This year’s report addresses a materially broader range of topics than in prior years particularly in the Market Integrity section). Additionally, the report introduces a new Financial Crimes section, consisting of three topics—Anti-Money Laundering (AML), Fraud and Sanctions; Cybersecurity and Technological Governance; and Manipulative Trading. The report also identifies several emerging risks: Manipulative Trading in Small Cap IPOs, Sanctions Evasion, ACATS Fraud, and Senior Investors and Financial Crime.
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
David Amster
p. (917) 568-6470
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