Generally, NFA tries to visit a new Member firm within a year of the firm becoming active.
NFA is required to examine FCMs and RFEDs on an annual basis if they hold customer funds. NFA conducts a risk-based analysis to determine which of its other Member firms to visit in any given period. This analysis considers many different business factors, as well as information such as customer complaints or concerns that arise during NFA's review of a firm's disclosure document, financial statement or promotional material. Generally, NFA visits CPOs, CTAs and IBs every three to four years, but the frequency may vary depending on NFA's risk analysis.
The best way to be prepared for an NFA examination is to have properly prepared and maintained books and records available for review at all times. NFA's Self-Examination Questionnaire, which Members must complete annually, is a valuable source of information concerning a Member's regulatory responsibilities and internal procedures. Reviewing the checklist should alert you to potential problem areas and procedures that need to be revised or strengthened.
I'm the compliance officer for a new firm and have limited experience in the derivatives industry. Can I meet with NFA staff outside of an examination to see if we have everything in order?
You may contact NFA's Information Center to request an educational visit. An educational visit is voluntary, available at no cost, and usually occurs within six to nine months after NFA membership becomes effective and before the firm begins operating. During the visit, NFA staff will review your firm's operations, suggest improvements in your compliance procedures and discuss your regulatory requirements and address any areas of concern you might have. These visits give firms the opportunity to ask questions about their regulatory obligations, and they provide NFA staff with the opportunity to learn about a new Member's business so that a future examination will be more efficient.
In most cases, a member of NFA's examination team will notify a Member by telephone of an upcoming examination. When possible, NFA will provide this notice about two weeks before the visit. This announcement is intended to provide the Member and key personnel with the opportunity to adjust their calendars accordingly and gather all necessary documents. In order for NFA to effectively meet its obligations, NFA cannot announce examinations in certain circumstances, including examinations of FCMs and RFEDs who hold customer funds, firms with sales practice concerns, or firms with customer complaints.
NFA will potentially review all of your firm's procedures, books and records associated with your commodities business. This includes, but is not limited to, the following:
- Corporate Records
- Anti-Money Laundering Policies and Practices
- Cybersecurity Program and Practices
- Sales Practices
- Supervisory Procedures
- Account Opening Documents
- Order Tickets
- Bunched Order Allocations
- Margin Policies
- Promotional Material
- Disclosure Documents
- Performance Capsule Support
- Bank Records
- Trading Records
- Internal Controls and Control Environment
- Financial Statement Records
The length of an examination depends on the scope of the firm's operations, the condition and complexity of the firm's records, the responsiveness of firm personnel to NFA requests and the results of prior examinations. The time can vary greatly between Member firms. For example, fieldwork for a guaranteed IB with an average amount of business, minimal promotional material and no customer complaints can be completed in about two days, while fieldwork for an FCM or RFED can take about three weeks. Fieldwork for a CTA is generally about five days and for a CPO is about two weeks. When an examination is announced, the examiner can give you a better estimate of the time needed to complete the fieldwork at your firm.