INTRODUCING BROKERS
An October 31, 2014, Notice to Members, Notice I-14-27, announced that all introducing brokers (“IBs”) financial reports are now required to be filed electronically, this includes the annual certified reports. This is a result of the National Futures Association’s (“NFA”) amendment to Section 5 of the NFA Manual. Section 5 outlines the financial requirements for Member IBs. The amendment to the financial requirements includes the annual certified FOCUS reports, submitted by IBs that are also broker-dealers, and is effective October 31, 2014, for reports filed through the WinJammer filing system and the NFA’s EasyFile system. The WinJammer system was recently upgraded to accommodate filings of certified annual FOCUS reports.
COMMODITY FUTURES TRADING COMMISSION
On November 10, 2014, the Commodity Futures Trading Commission (“CFTC”) issued press release PR: 7055-14 (“Press Release”) and staff letter No: 14-137 (“Staff Letter”), both of which addressed trade executions and swaps. The Press release was an announcement from the Division of Market Oversight (“Division”) regarding further implementation of the trade execution requirement for certain interest rate and default swaps. No-action relief was granted by the Division, previously, for swap execution facilities (“SEFs”) and designated contract markets (“DCMs”) that were part of a package transaction. Further relief has been provided to allow market participants ample time to comply with the requirements. Also, additional time will allow those affected to transition to SEFs and DCMs. The relief has been categorized and each category has been bestowed a specific date upon which the relief will expire. Further, the relief was designed to offer SEFs and DCMs flexibility in offering methods of execution for swap components of certain package transaction for which they facilitate trading. The Staff Letter correlates to the Press Release and details the relief categories and compliance timeline.
The Staff Letter addressed the extension of no-action relief and additional no-action relief for SEFs and swaps executed as part of certain package transactions. The Staff Letter provides relief to entities or counterparties from the various trade execution requirements. The no-action relief applies to Commodity Exchange Act (“CEA”) Sections 2(h)(8), 5(d)(9) and CFTC Regulation Section 37.9. The relief pertains to swap components executed as part of package transactions. Package transactions, as defined in the Staff Letter, are transactions involving two (2) or more instruments: executed between multiple counterparties; priced or quoted as one (1) economic transaction with concurrent execution of all components; at least one (1) component is a swap that is available to trade and therefore subject to the CEA Section 2(h)(8); and lastly, the execution of each component is contingent upon the execution of all of the other components.
FINANCIAL CRIMES ENFORCEMENT NETWORK
The latest advisory (FIN-2014-A009) issued by the Financial Crimes Enforcement Network (“FinCEN”) was released on November 12, 2014, (the “Advisory”). The Advisory reflects the recent updates to the list of jurisdictions with strategic anti-money laundering (“AML”)/combating terrorism financing (“CFT”) deficiencies. Additionally, the Advisory provides guidance with respect to the changes and how they may affect U.S. financial institutions’ obligations and risk-based approaches for the jurisdictions on the list. The list of deficient jurisdictions is maintained and monitored by the Financial Action Task Force (“FATF”). As part of its monitoring process, FATF identifies jurisdictions that require enhanced due diligence (“EDD”) due to their AML/CFT deficiencies and jurisdictions having deficiencies in the AML/CFT regimes, for which they have developed an action plan with the FATF to address such deficiencies.
FATF has made no changes to the list of jurisdictions subject to countermeasures or EDD due to their AML/CFT deficiencies. As it stands, jurisdictions on this list are categorized as jurisdictions that should be subject to imposed countermeasures or jurisdictions that should be subjected to EDD. FinCEN advised U.S. financial institutions to apply EDD to countries on FATF’s EDD list. Currently on the list: Algeria, Ecuador, Indonesia and Myanmar.
FATF has removed five (5) countries from its list of jurisdictions identified as having AML/CFT deficiencies. The jurisdictions on this list have previously been identified as having AML/CFT deficiencies and have made efforts to improve AML/CFT by developing an action plan with FATF, which includes cooperation with regional FATF-like organizations. As a result of considerable improvements to their AML/CFT regimes, the following countries have been removed from the list: Argentina; Cuba; Ethiopia; Tajikistan; and Turkey. These jurisdictions will continue to strengthen and improve their system to prevent money-laundering and combat the financing of terrorism. FATF has also made an addition to the list. Guyana has been identified as having strategic deficiencies in the prevention of money-lauding and terrorist financing.
FinCEN’s Advisory, outlines and provides guidance on engaging in financial transactions with countries on the list of jurisdictions subject to countermeasures or EDD. U.S. financial institutions are subjected to a broad range of restrictions, prohibitions and increased obligations of EDD if doing business with countries on FATF’s countermeasures or EDD lists. For jurisdictions on FATF’s AML/CFT deficient list, U.S. financial institutions are advised to consider the risks associated with doing business with countries on this list. The Advisory stresses the obligations of U.S. financial institutions to ensure they have developed strong and cohesive due diligence procedures that are reasonably designed to prevent, detect and report possible money laundering or terrorist financing.
For further information about any of the topics covered, please feel free to contact Ruddy Law Office, PLLC (www.ruddylaw.com) or 202-797-0762.
