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The proposals contained herein are in response to the Commission's request that NFA adopt minimum standards for anti-money laundering programs applicable to the futures industry. As the Commission is aware, Section 352 of the International Money Laundering Abatement and Anti-Terrorist Financing Act of 2001 ("Title III") requires financial institutions, as defined under the Bank Secrecy Act ("BSA"), to implement an anti-money laundering program which, at a minimum, must include internal policies, procedures and controls to deter, detect and report suspicious activity; a designated compliance officer to oversee anti-money laundering surveillance; an ongoing training program for employees; and an independent audit function to test the compliance of the program. The proposed amendments to Rule 2-9 implement this requirement.
Although the BSA explicitly defines "financial institutions" to include FCMs, CPOs and CTAs (but not IBs), the Treasury has requested that NFA's anti-money laundering program requirements apply to IBs. The Treasury notes that it intends to clarify that IBs are within the BSA's definition of "financial institutions" in the near future. In the Treasury's view, this amendment is necessary so that Title III's requirements apply to FCMs and IBs in a manner comparable to clearing and introducing broker-dealers in the securities industry, which are both currently included in the definition of "financial institutions." It is NFA's understanding that the Treasury has also decided to defer application at this time of the anti-money laundering compliance program requirements to CPOs and CTAs.
The proposed Notice makes clear that FCMs and IBs must adopt an anti-money laundering compliance program. The Notice allows FCMs and IBs to allocate their responsibilities by written agreement, but indicates that both parties must have a reasonable basis for believing that the other party is performing their required functions. The Notice also highlights that the Secretary of the Treasury has stated that allocating these responsibilities does not relieve either the FCM or the IB of its independent obligation to comply with the anti-money laundering requirements.
The proposed Notice is divided into four main areas that track the requirements of Section 352. The first section discusses the types of policies, procedures and internal controls that FCMs and IBs should include in their anti-money laundering program. Specifically, the Notice discusses procedures for obtaining and verifying the true identity of the owner/beneficial owner of an account. The Notice also describes various relationships between carrying FCMs and IBs and other entities and discusses the FCM's and IB's responsibilities when other entities are involved. In particular, the Notice states that when an FCM or IB is doing business with a CPO, the FCM or IB will be required to conduct a risk-based analysis of the money laundering risks posed by the pool and, in most instances, this analysis will not require the FCM or IB to conduct due diligence on the underlying participants or beneficiaries. With regard to the treatment of accounts introduced by regulated foreign intermediaries, the proposed Notice requires an FCM to make a risk-based determination as to whether it can rely on the foreign intermediary's due diligence with respect to its customers. The Notice also identifies certain factors to consider including whether the intermediary is located in a FATF member jurisdiction, the FCM's historical experience with the foreign intermediary and the intermediary's reputation in the investment business.
The first section of the Notice also describes procedures for detecting and reporting suspicious activity, hiring qualified staff in areas susceptible to money laundering and recordkeeping requirements. The second section of the Notice discusses the requirement that the firm designate an individual or individuals to oversee the surveillance program. This section also highlights the main responsibilities of this individual. The third section discusses the components of an employee training program. Finally, the last section discusses the independent audit review function and the ways a firm can satisfy this requirement.
Representatives of the Futures Industry Association and the National Introducing Brokers Association reviewed the proposed Notice, and they appear to be generally comfortable with the Notice's language.