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September 29, 1997
Via Facsimile and Regular Mail
RE: Proposed Amendments to the Bank Secrecy Act
Dear Mr. Morris:
National Futures Association ("NFA") appreciates the opportunity to comment on the proposed amendments to the Bank Secrecy Act regulations relating to non-bank financial institutions. NFA is the industrywide self-regulatory organization for the futures industry. CFTC regulations provide, in effect, that all firms required to be registered as futures commission merchants ("FCMs") must be members of NFA. Our 3,200 member firms also include commodity pool operators, commodity trading advisors and introducing brokers. NFA also has regulatory responsibility for approximately 50,000 individuals registered as associated persons under the Commodity Exchange Act.
NFA fully supports the efforts of the Department of the Treasury, Financial Crimes Enforcement Network ("FinCEN") to combat money laundering. We recognize the importance of the proposed rules and the difficulty of accomplishing the intended results without unintended consequences, especially where the proposed rules cover areas already subject to pervasive federal regulation. The impact of the proposed rules on FCMs illustrate such problems quite clearly.
The proposed definition of "money transmitter" is broad enough to encompass FCMs. Since the definition of "money services business" includes "money transmitters," FCMs are included within both terms. The inclusion of FCMs within these definitions seems odd for several reasons. First, FCMs are already subject to comprehensive regulation by both the Commodity Futures Trading Commission and industry self-regulatory organizations, including futures exchanges and NFA. Second, funds transmission is not the core of any FCM's business activities, but rather an adjunct to clearance and settlement of futures trading activity. Finally, FCMs have not historically been involved in the type of money laundering activity which is the impetus for the proposed more stringent regulations. The proposed regulations give limited recognition to these points by exempting both FCMs and broker-dealers from the general requirement that "money services businesses" register with the Treasury Department. Unfortunately, this parallel treatment of FCMs and broker-dealers is lacking in other sections of the proposed regulations.
Though the rationale for including FCMs within the definitions of "money transmitter" and "money services business" is unclear, the impact of doing so is both clear and troubling. For example, the proposed rules impose a requirement that "money services businesses" report suspicious transactions of $500 or more. The proposal specifically exempts banks, broker-dealers and casinos from this requirement. Given the closely analogous business activities and regulatory schemes which apply to both broker-dealers and FCMs, it seems logical that FCMs should enjoy the same exemption.
The proposed rules also impose reporting requirements regarding transfers of between $750 and $10,000 to any person outside of the United States. The proposal exempts depository institutions from this reporting requirement, in part, because they are subject to examination by federal agencies and have not been involved in the types of money laundering transactions which gave rise to the rule proposal. Every rationale offered for exempting depository institutions, however, applies with equal vigor to FCMs. They are pervasively regulated, subject to examination by both the CFTC and self-regulatory organizations and have not been a part of the money laundering problems which the are the target of the rules. We can see no reason why FCMs should not also be exempt from this section of the proposal.
Daniel J. Roth