As your industry advocate, the NIBA provides many services which help your business stay in compliance with NFA regulations. “Ask the NFA,” is the way you can ask questions about those regulations and compliance requirements without having to call NFA directly.
Just email us at nfacomments@theniba.com and we will get the answers for you. Please keep in mind the purpose of this contact is to keep the lines of communication between the NFA and NIBA members.
This month’s questions were selected from those submitted by NIBA members. The answers were supplied by NFA staff.
"I was wondering if you could guide me to any more sources on the topic of a CTA compensating a friend or current client for introducing the CTA to a new client. Assuming no brokerage commission sharing, no violations of marketing rules in terms of being deceptive, not disclosing risks, etc., is it then OK to compensate an unregistered friend for making a referral (or multiple referrals), perhaps a percentage of fees earned by the CTA from the referred account? Also, if the CTA is non-US based, does that affect this topic? Would relationships and compensation to those referring new clients no longer be under NFA/CFTC jurisdiction? Any further sources, case study, notices, etc. - in short, any guidance or information - is very much appreciated!"
As a general rule, any firm or individual receiving compensation for referring or introducing U.S. futures customer(s) to a CTA is required to be registered. The location of the CTA Member does not impact the registration requirement of a referring party that receives compensation for referrals. It is recommended that you contact the CFTC to discuss each scenario to explore whether or not registration for the referring entity is necessary.
"What guidance does NFA offer when it comes to solicitation registration requirements? I am wondering if I have a broker recruit who is studying for the series 3 but has not yet passed, can that individual be on the phone in any capacity, for example appointment setting for a registered broker so long as it's made clear the person on the phone is not a broker? Or are there any other scenarios that would be acceptable prior to completion of the exam?"
Individuals not registered as associated persons (AP) may act in a clerical capacity as long as they are not engaging in any activity that would require them to be registered as an AP, such as soliciting or accepting customer orders, offering trade advice, or supervising those who engage in these activities. Refer to CFTC Regulation 3.12 for information on registration requirements for associated persons.
"When do I have to have my cybersecurity training completed by?"
NFA's Cybersecurity Interpretive Notice states that a Member's written Information Systems Security Program (ISSP) should contain a description of the Member's ongoing education and training relating to information security for all appropriate personnel. NFA's Cybersecurity Interpretive Notice further states that the training program should be conducted for employees upon hiring, and periodically during their employment, and be appropriate to the security risks the Member faces as well as the composition of its workforce.
"I have heard lately internal controls are a new thing but we are a small shop. What type of internal controls should a small IB have in place?"
Review of internal controls has always been an important part of NFA examinations. Every member must ensure it maintains adequate controls to supervise its operations. To help ensure adequate controls are in place, Members must complete NFA's Self-Examination Questionnaire on an annual basis. After reviewing the questionnaire, an appropriate supervisory person must sign the questionnaire stating that the Member's operations have been evaluated based on the questionnaire and attesting that the Member's procedures comply with all applicable NFA requirements. See NFA Interpretive Notice 9020 for additional information on this requirement
