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Wed, 15 Sep 2017— Amendments to Bylaw 301. An explanation of the amendments and Interpretive Notice can be found in the August 30, 2017 rule submission letter.
Wed, 15 Sep 2017— Amendments to Registration Rules. An explanation of the amendments and Interpretive Notice can be found in the August 30, 2017 rule submission letter.
Wed, 15 Sep 2017— Amendments to Compliance Rule 2-9: NFA Interpretive Notice NFA Compliance Rule 2-9: Special Supervisory Requirements for Members Registered as Broker Dealers Under Section 15(b)(11) of the Securities Exchange Act of 1934. An explanation of the amendments and Interpretive Notice can be found in the August 30, 2017 rule submission letter.
9014 - NFA COMPLIANCE RULE 2-4: CONFIDENTIALITY LANGUAGE IN RELEASE AGREEMENTS(Staff, February 7, 1991; revised December 17, 2007)
NFA has become aware of a practice utilized in the settlement of customer complaints and arbitration proceedings whereby, as a condition of settlement, a customer is required to sign a release which limits their ability to cooperate with regulatory authorities. The language being utilized goes beyond the general confidentiality language requiring that no public statement be released with respect to the terms of the settlement. Although the scope of the language in each release differs, it is apparent that the language being incorporated by some firms requires the customer to refrain from releasing or disclosing any information to regulatory bodies except as required by court order or as otherwise required by law.
The plain meaning of such language would bar the customer from cooperating with NFA. NFA has encountered this situation in the course of conducting investigations into apparent violations by Members. Customers have been reluctant to provide information and testimony because of this type of confidentiality provision in their agreements, therefore frustrating the effectiveness of the NFA enforcement process.
While the practice of including language prohibiting the disclosure of settlement terms is acceptable, the use of language which clearly bars customer cooperation with NFA is not. Including such language in settlement agreements is viewed by NFA as an unethical practice and a failure to observe high standards of commercial honor and just and equitable principles of trade.
Therefore, NFA staff has recommended and an NFA Regional Business Conduct Committee has charged a violation of NFA Compliance Rule 2-4 when language which prohibits the customer from cooperating with NFA is used as a term of settlement. NFA staff will continue to recommend that a violation of NFA Compliance Rule 2-4 be charged when this language is used.
The Financial Industry Regulatory Authority ("FINRA") has also encountered the use of this language by some of its members. In response, the FINRA issued a notice informing its members that this practice may be viewed as unethical and would constitute a violation of FINRA rules.
An agreement containing language restricting the release of information to regulatory or law enforcement agencies may also be found to be void as against public policy by state courts. The public policy concern is implicated because the scope of this language goes beyond the private rights of the individuals involved by discouraging the release of information and potential evidence and interfering with the process of justice.
While general confidentiality language in release agreements is certainly permissible, NFA staff cautions Members against the use of settlement agreements which include language limiting or prohibiting a customer from providing information and cooperating with NFA. This is not intended to impose an affirmative duty on Members to include language explicitly permitting such cooperation, but merely to avoid explicit language barring it.