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Notice I-04-03

January 22, 2004

Department of Treasury Issues Final Rule Requiring FCMs and IBs to File Suspicious Activity Reports

The Department of Treasury has issued a final rule requiring FCMs and IBs to report suspicious financial transactions to the Financial Crimes Enforcement Network (FinCEN) by filing a suspicious activity report known as a form SAR-SF. The final rule became effective on December 22, 2003 and applies to transactions occurring after May 18, 2004. The purpose of this Notice is to alert FCM and IB Members to the new requirements and provide a brief overview of the requirements. The full text of the Rule can be found at http://www.fincen.gov/fedregister_fcmfinalrule.pdf. In addition, a copy of form SAR-SF can be found at http://www.fincen.gov/reg_bsaforms.html.

Reporting Requirement

The final rule requires FCMs and IBs to report suspicious transactions that are conducted or attempted by, at, or through an FCM or IB, involve an aggregate of at least $5,000 in funds or other assets (not limited to currency), and the FCM or IB knows, suspects or has reason to suspect that the transaction (or pattern of transactions):

  • Involves funds that come from illegal activity or are part of a transaction designed to conceal that the funds are from illegal activity;

  • Are designed, such as through structuring, to evade the reporting requirements of the Bank Secrecy Act (BSA);

  • Do not appear to serve any business or apparent lawful purpose; or

  • Use the FCM or IB to facilitate a criminal transaction.

FCMs and IBs should keep in mind that the definition of transaction is very broad and is not limited to transactions conducted on a designated contract market or a derivatives transaction execution facility.

The Rule also permits firms to file reports for suspicious activity that is not required to be reported by this Rule (e.g., a transaction falling below the $5,000 threshold).

Exceptions

The final rule contains two exceptions to the reporting requirement. FCMs and IBs are not required to file form SAR-SF for activity related to a robbery or burglary, provided that the activity is reported to the appropriate law enforcement agency. FCMs and IBs are also not required to file form SAR-SF for a violation of the Commodity Exchange Act, CFTC regulations, Exchange or NFA rules committed by the FCM/IB or any of its officers, directors, employees, or associated persons, provided that this activity is properly reported to the appropriate agency. However, if this activity also involves a violation of the BSA, FCMs and IBs must also file form SAR-SF.

Dual Registrants

The final rule applies to all FCMs and IBs, except broker-dealers that are notice registered with the CFTC solely to conduct SFP transactions. Firms that are otherwise dually registered can rely on this Rule or the Broker Dealer SAR rule. FCMs and IBs that are an affiliate or a subsidiary of a bank or a bank holding company are subject to this Rule.

Filing Requirements

The report must be filed with FinCEN at a central location that is noted on the filing instructions within 30 days after the FCM/IB becomes aware of a suspicious transaction. However, if the FCM/IB is not able to identify a suspect, the filing date may be extended an additional 30 days in order to attempt to identify the suspect. The report must be made on form SAR-SF, which is the same form used by broker-dealers. In situations where more than one FCM and/or IB is involved, only one form needs to be filed provided that the report contains all the relevant facts. FCMs and IBs may consult and share information (including the SAR-SF) with each other in order to file a single report. A copy of the form and any supporting documentation must be maintained by the filing firm for a period of 5 years from the date of the filing. Other firms involved in the transaction, but not filing the report, should also maintain a copy of the form.

Confidentiality

FCMs, IBs and their officers, directors, employees and agents are prohibited from disclosing (except to appropriate law enforcement or regulatory entities) that a transaction has been reported.

Safe Harbor

The final rule also provides FCMs, IBs and their officers, directors, employees and agents with a statutory safe harbor against private civil claims brought by customers or others for any disclosures contained in form SAR-SF or for failure to disclose that a report has been filed. The safe harbor applies equally to filings that are made on a voluntary basis.

Other BSA Requirements

The final rule also brings FCMs and IBs into the regulatory definition of "financial institution" for purposes of the BSA. As a result, FCMs and IBs are now required to comply with the currency transaction reporting and funds transfer recordkeeping requirements set forth in the BSA. FCMs and IBs no longer have to file Form 8300 with the IRS for receipt of currency over $10,000 in a trade or business. Information on CTRs and other BSA forms is available at 1-800-800-2877.

If you have any questions on these requirements, please contact Carol Wooding, Assistant General Counsel, at (312) 781-1409 or cwooding@nfa.futures.org or Sharon Pendleton, Associate Director - Compliance, at (312) 658-6540 or spendleton@nfa.futures.org.

NFA is the premier independent provider of efficient and innovative regulatory programs that safeguard the integrity of the derivatives markets.
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