Springtime Compliance Housekeeping Items

Springtime Compliance Housekeeping Items

In January 2021, at the request of Futures Industry Association (“FIA”), CME Group Inc. (“CME”), ICE Futures U.S. (“IFUS”), and the Minneapolis Grain Exchange, LLC (“MGEX”), the CFTC granted partial extensions to previously issued No-Action positions to facilitate the physical separation of registrant personnel in response to the COVID-19 Pandemic. In connection with an industry-wide response to the COVID-19 pandemic, the CFTC granted no-action relief in a series of letters in 2020 for failure to comply with certain CFTC regulations, where compliance was anticipated to be particularly challenging or impossible because of the displacement of the personnel from their normal business sites, due to implementing recommended practices, such as social distancing and closures, to curtail the spread of the COVID-19 pandemic.

In the CFTC recent extensions, the CFTC is extending the relief for timestamping orders until April 15, 2021 and the extension of relief for Oral Recordkeeping until March 31, 2021.

Specifically, NIBA Members are required to comply with timestamping requirements under CFTC regulations 1.35 and 155.3. However due to the displacement of staff during the pandemic, relief was granted from certain timestamping requirements. The relief from timestamping does not apply to timestamps for customer orders that are able to be entered into a trade-matching engine immediately upon receipt. If your firm is entering orders directly into a trading platform, you must ensure the necessary timestamps as required by CFTC regulations and your internal order procedures exist at all times. This date is fast approaching, and it does not appear as of the date of this writing that the CFTC will have another extension for the timestamping requirement. Your firm needs to ensure adequate procedures are in place to meet the timestamping requirement by April 15, 2021, as you may not be able to rely on continued relief.

With respect to oral recordkeeping, many firms are required to make and keep records of oral communications pursuant to Commission regulation 1.35, if they meet revenue criteria established by the regulations. Such records are in the form of electronic recordings of conversations leading up to a customer order. If personnel are required under firm policy to use recorded lines and are displaced under the firm’s business continuity plan, certain relief was granted from making and keeping these recordings as long as (i) a written record of the oral communication, including date, time, identifying information of the persons participating, and subject matter of the communication, is created and maintained as a written communication in accordance with Commission regulation 1.35; and (ii) they take affirmative steps to collect any written materials pertaining to the content of the oral communication, including, without limitation, handwritten notes or other contemporaneous or subsequently created transcripts or summaries, and maintains them in its required books and records, recordings. This relief is set to expire on March 31, 2021. The CFTC does not expect to extend this relief further. If your firm is relying on this relief, you should be prepared to explain any lack of progress toward meeting the oral communications recordkeeping requirement pursuant to CFTC regulation 1.35 by sending notice to [email protected] well in advance of the deadline for this relief.

Around this time last year, NFA sent out a Notice to Members stating that it would not pursue disciplinary action against a Member that permits APs to temporarily work from locations not listed as a branch office and without a branch manager. While a good number of firms did require its APs and other staff to operate from remote locations pursuant to its business continuity plan, it is important to note that these firms still need to implement alternative supervisory methods to adequately supervise the APs’ activities and meet its recordkeeping requirements. This can be accomplished a number of ways, including but not limited to phone monitoring, an increase review of electronic mail, turning on intercoms during normal business hours, video calls and monitoring, and other available and reasonable supervisory procedures. As we are seeing state and local mandates being eased, NFA expects that these APs will return to the Member’s main office or listed branch office location once a Member firm is no longer operating under contingencies pursuant to its business continuity plan.

We cannot stress enough that while some form of relief exists, all CFTC registrants and NFA Members relying on available relief must establish and maintain a supervisory system that is reasonably designed to supervise the activities of personnel while acting from an alternative or remote location during the COVID-19 pandemic. Through conversations with the CFTC and NFA, the regulatory authorities expect that as the COVID-19-related risks begin to decrease and certain state and local mandates are eased, CFTC registrants and NFA members will begin to implement compliance with all regulatory obligations from which relief has been provided.

Contributed by Robert DeMuria, President and Co-Founder of Compliance Supervisors International, Inc., a full-service compliance firm serving the futures industry since 1994. Robert is also a member of NIBA’s Advisory Group. Should your firm need assistance with the regulatory reporting for the PPP loan or any other compliance assistance relating to the rules and regulations governing your operations, please feel free to contact Robert at 732-335-5740 or you can e-mail him at [email protected].

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