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February 14, 1997
Late Fee and Suspension of Registration for Noncompliance with Ethics Training Requirements
CFTC training ethics requirements mandate that individuals registered as of April 1993 must have completed an ethics training program by April 1996 and must attend refresher courses every three years. The requirements mandate that new registrants must complete their ethics training within six months of becoming registered and must also attend courses every three years thereafter. Well in advance of the April 1996 deadline, NFA began to alert NFA Members of the ethics training requirements and to assist them in identifying their Associated Persons ("APs") whose ethics training deadlines were approaching or had passed.
In late 1994, NFAs newsletter to Members, News, Facts, Actions, contained an article on NFAs development of an ethics training requirement tracking system. In the February-March 1995 edition of the newsletter, NFA advised Members that the tracking system was operational and that NFA would send them reports concerning their APs ethics training status on request and with annual updates. In the September-October 1995 edition, NFA again reminded Members of the approaching April 1996 deadline and informed Members of the availability of reports. NFA also made presentations at five meetings of the Association of Registration Managers on this topic between January 1994 and January 1996. As a result of these efforts, NFA responded to over 700 requests from Members for reports on the status of their APs regarding compliance with the ethics training requirements.
In addition, about a year prior to the April 1996 deadline, NFA began routinely providing specific information to Members to assist them in identifying APs who had not yet satisfied their ethics training requirements. Beginning in February 1995, NFA began sending two reports to Members with their annual updates. One report listed newly registered APs who were overdue in providing evidence of having taken ethics training. The second report included those APs who were due to take the training by April 1996. NFA has continued to send reports to Members with their annual updates listing APs who are overdue and who are due to take the training in the upcoming twelve months.
Through those efforts, the number of persons who were overdue for ethics training has been greatly reduced. However, there still remains a large number of individuals who continue to disregard the seriousness of complying with the ethics training requirements. To address this issue, NFAs Board of Directors in November 1996 approved amendments to NFAs Registration Rules to impose a $500 late fee on firms for each of their overdue APs and to provide for automatic suspension of APs who continue to be overdue in ethics training. The rules were approved by the CFTC on January 30, 1997 and will become effective immediately. The text of the rules is set forth below. Additionally, a list of Authorized Ethics Training Providers as of January 31, 1997 is attached to this Notice.
While the rules themselves are relatively straightforward, NFA thought it would be helpful for the membership to know how these rules would be implemented. There can be delays in the reporting of attendance data by ethics training providers to NFA, so the rules will be applied in a way which minimizes the likelihood that any such delay could impact a Member firm or AP unfairly. For example, NFA intends to notify each Member at least once a year of that Members APs who are currently overdue for ethics training. The Member would be informed that if those APs do not complete their ethics training within thirty days, the firm will be subject to a $500 late fee for each overdue AP and the AP will be subject to summary suspension. NFA would not, however, immediately invoice the firm or suspend the APs after the thirty days had run. Rather, an additional thirty days would be provided to allow for the receipt of reporting information from providers. At the end of that thirty days the firm would be invoiced for $500 for every AP still showing as overdue. In addition, each of the overdue APs would be given notice at that time that their registrations will be suspended in ten days and that the suspension will remain in effect until the AP demonstrates that he is in compliance with the ethics training requirements. In NFAs view, this approach provides ample but not excessive time for individual registrants and their sponsors to comply with the rules and also provides NFA and the sponsor with enough time to investigate and resolve any disputed facts regarding any APs ethics training status.
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PART 200. REGISTRATION REQUIREMENTS
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RULE 203. REGISTRATION FEES.
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(12) Late Ethics Training Fee. A sponsor shall pay a fee of $500 for each AP that it sponsors who has not timely complied with the ethics training requirements in accordance with CFTC Regulation 3.34. Sole proprietor FCMs, IBs, CPOs, CTAs and LTMs who have not timely complied with the ethics training requirements in accordance with CFTC Regulation 3.34 shall pay a fee of $500.
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RULE 215. SUSPENSION OF REGISTRATION FOR NONCOMPLIANCE WITH ETHICS TRAINING REQUIREMENTS.
NFA may give written notice to any AP and any sole proprietor FCM, IB, CPO, CTA and LTM who has not timely complied with the ethics training requirements in accordance with CFTC Regulation 3.34 that their registration shall be suspended effective ten days after the date of the notice. The suspension shall remain in effect until NFA receives from a listed ethics training provider satisfactory evidence of compliance with the ethics training requirements.