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July 28, 2010
Effective Date of Changes to NFA's Know-Your-Customer Requirements
Amendments to NFA Compliance Rule 2-30 and its related Interpretive Notice will become effective January 3, 2011. Rule 2-30 requires NFA Members and Associates to obtain information about their futures customers and provide such customers with appropriate risk disclosure prior to the time the customer first opens a futures trading account or authorizes the Member to direct trading in their account. Generally, the amendments broaden the scope of the rule through the following changes:
- Expanding the customers covered by the rule to reach not just individual customers but all non-ECP customers;
- Requiring FCM Members to annually request that active customers notify the Member of any material changes to the information obtained from the customer pursuant to Compliance Rule 2-30(c), and requiring the FCM, IB or CTA Member that currently solicits and communicates with the customer to determine if additional risk disclosure is required to be provided based on any changed information; and
- Prohibiting Members and Associates from making individualized trading recommendations to those customers whom the Member or Associate has or should have advised that futures trading is too risky for them.
The annual update process will only apply to active customers.1 The FCM that carries the customer account will be required to contact the customer in writing at least annually to request that the customer notify the Member of any material changes to the information previously obtained.2 If a customer informs the carrying FCM that he/she is unable to verify the information because the information previously provided to the carrying FCM is not currently available to the customer, then the carrying FCM must promptly provide the information to the customer.
If the customer does not inform the carrying FCM of any material changes to the information, then the information previously provided is deemed verified. However, if a customer notifies the FCM of material changes to the information, a determination must be made as to whether additional risk disclosure is required based on the changed information. If another FCM or IB introduces the customer's account or a CTA directs trading in the account, then the carrying FCM must notify that Member of the changes to the customer's information. The Member or Associate who currently solicits and communicates with the customer is responsible for determining if additional risk disclosure is necessary.
More information on NFA's amendments to NFA Compliance Rule 2-30(b) and the related Interpretive Notice can be found in NFA's March 8, 2010 Submission Letter to the CFTC. Questions concerning these changes should be directed to Carol Wooding, Associate General Counsel (firstname.lastname@example.org or 312-781-1409) or Sharon Pendleton, Director, Compliance (email@example.com or 312-781-1401).
1 An active customer is defined as any customer who was entitled to a monthly account statement under the provisions of CFTC Regulation 1.33(a) at any time during the preceding year.
2 Members or Associates may contact the customer electronically or by any other means reasonably designed to reach the customer.