Earlier this year we provided a general overview of the annual compliance requirements for CPOs and CTAs.  The NFA has just released their annual reminder for all CFTC registratants (including IBs, FCMs and RFEDs).  The NFA notice, reprinted below in full, provides a good overview of what CFTC registered firms need to be focusing on during the next month or so.

CFTC registered firms are reminded that now is a good time to review and revise their compliance manuals and complete the NFA self-examination process.

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Notice I-11-06
February 03, 2011

Annual Regulatory Reminder

National Futures Association has always been committed to providing our Members with the resources they need to meet their regulatory obligations as efficiently as possible. Therefore, we are providing you with an annual reminder regarding certain requirements that are not part of your day-to-day operations. This list does not capture all of your responsibilities for the upcoming year, but it should help remind you of certain non-routine requirements.

Within the next 12 months you will be required to:

1. Complete the Annual Update process on the anniversary date of your firm’s registration. This process includes (1) completing the electronic Annual Registration Update; (2) electronically submitting the firm’s Annual Questionnaire on NFA’s website and (3) paying your annual registration fees and NFA dues.  Failure to satisfy all of the requirements in the annual update process within 30 days of your anniversary date will result in the withdrawal of your firm’s NFA registration and/or Membership. NFA’s BASIC system displays information reflecting whether or not firms are actively engaged in futures-related business activity or retail off-exchange foreign currency activities. If you commence operations, you should update your Questionnaire in order to change how your status is displayed in BASIC.
2. Complete NFA’s Self-Examination Checklist located on NFA’s website at http://www.nfa.futures.org/NFA-compliance/publication-library/self-exam-checklist.HTML.
3. Send your firm’s Privacy Policy to every current customer, client and pool participant (in addition to sending it to every new customer when the customer opens an account, enters into an advisory agreement, or purchases a subscription). For guidance in preparing your policy, please consult NFA’s Privacy Policy questionnaire (Appendix D of the Self-Exam Checklist).
4. Test your Disaster Recovery Plan and make any necessary adjustments. For guidance in preparing your plan, please consult NFA’s Business Continuity and Disaster Recovery Plan questionnaire (Appendix B of the Self-Exam Checklist).
5. Provide Ethics Training as outlined in your firm’s written Ethics Training Procedures. For guidance in developing your procedure, please consult NFA’s Ethics Training Policy questionnaire (Appendix C of the Self-Exam Checklist).
6. Supervise the operations of any Branch Offices, including conducting an annual onsite inspection of every Branch Office.

If you are a registered Commodity Trading Advisor, you will also be required to:

1. File any new exemption notices electronically through NFA’s Exemption System.
2. If soliciting new clients, distribute a Disclosure Document that is no more than 9 months old and that has been reviewed and accepted by NFA. Ensure that the document includes a complete business background and discloses all potentialconflicts of interest in accordance with NFA’s recent guidance. Disclosure Documents should be filed electronically throughNFA’s Disclosure Document System.
3. If placing bunched orders, analyze each trading program at least quarterly to ensure that the order allocation method has been fair and equitable and document this analysis.
4. The FCM that carries your client accounts will be contacting your clients to verify that the information obtained under NFA Compliance Rule 2-30(c) remains materially accurate, and provide the client with an opportunity to correct and complete the information. If the FCM notifies you of any material changes to the information, assess whether additional risk disclosure is required to be provided to the client based on the changed information.

If you are a registered Commodity Pool Operator, you will also be required to:

1. File any new exemption notices electronically through NFA’s Exemption System.
2. If soliciting new pool participants, distribute a Disclosure Document that is no more than 9 months old and that has been reviewed and accepted by NFA. Ensure that the document includes a complete business background and discloses all potential conflicts of interest in accordance with NFA’s recent guidance. Disclosure Documents should be filed electronically through NFA’s Disclosure Document System.
3. Update your CPO Questionnaire on NFA’s website for any pools that have liquidated.
4. Submit to NFA through NFA’s EasyFile system, and distribute to current participants, a certified Annual Report for each pool as of the close of the pool’s fiscal year. CFTC Regulations require Commodity Pool Operators to follow strict deadlines and filing requirements, and failing to meet those deadlines may result in a disciplinary action against a CPO. To learn more about EasyFile, go to NFA’s website and access the seminar at http://www.nfa.futures.org/NFA-compliance/NFA-education-training/webinars.HTML. Since NFA acts as the CFTC’s delegate when NFA receives and reviews Annual Reports, the reports are subject to requests under FOIA. CPOs may request confidential treatment of Annual Reports but must strictly follow the CFTC procedures contained in CFTC Regulation 145.9 for filing such requests. For information on how to request confidential treatment of Annual Reports filed with NFA, consult the information on NFA’s website at http://www.nfa.futures.org/NFA-compliance/NFA-commodity-pool-operators/cpo-confidential-treatment-requests.HTML.  When preparing pool Annual Reports, refer to the CFTC’s annual letter for useful tips.
5. Within 45 days after the end of each quarter, submit to NFA through NFA’s EasyFile system, a Pool Quarterly Report for each pool that you operate. Information required to be filed includes: (a) the identity of the pool’s administrator, carrying broker(s), trading manager(s) and custodian(s); (b) a statement of changes in net asset value; (c) monthly performance for the three months comprising the quarterly reporting period; and (d) a schedule of investments identifying any investment that exceeds 10% of the pool’s net asset value at the end of the quarterly reporting period.

If you are a registered Introducing Broker, you will also be required to:

1. Conduct Anti-Money Laundering (“AML”) training for relevant employees and complete an audit of your AML procedures and training. For guidance in developing your AML procedures, use NFA’s AML Procedures System.
2. The FCM that carries your customer accounts will be contacting your customers to verify that the information obtained under NFA Compliance Rule 2-30(c) remains materially accurate, and provide the customer with an opportunity to correct and complete the information. If the FCM notifies you of any material changes to the information, assess whether additional risk disclosure is required to be provided to the customer based on the changed information.
3. If you are not operating pursuant to a guarantee agreement, submit a certified annual report within 90 days after the firm’s fiscal year end. IBs that are also registered as Broker/Dealers (“BDs”) must submit the report within 60 days after the firm’s fiscal year end. IBs that are not also registered as BDs must file this certified statement via NFA’s EasyFile system.
4. If you are not operating pursuant to a guarantee agreement, submit semi-annual 1-FR-IB filings via EasyFile within 17 business days of the date of the statement (in addition to completing and maintaining monthly net capital computations). IBs also registered as BDs may file via WinJammer and must also file with NFA all statements required by FINRA. All financial statements should be prepared using the accrual basis of accounting as required by Generally Accepted Accounting Principles.

If you are a registered Futures Commission Merchant or Retail Foreign Exchange Dealer, you will also be required to:

1. Conduct Anti-Money Laundering (“AML”) training for relevant employees and complete an audit of your AML procedures and training. For guidance in developing your AML procedures, use NFA’s AML Procedures System.
2. Review your Point of Contact information for USA PATRIOT Act 314(a) information requests and notify NFA of any changes (FCMs only).
3. Supervise the operations of any GIBs, including conducting an annual onsite inspection of every GIB.
4. Contact active customers who are individuals, at least annually, to verify that the information obtained from that customer under NFA Compliance Rule 2-30(c) remains materially accurate, and provide the customer with an opportunity to correct and complete the information. If the customer notifies you of any material changes to the information, assess whether additional risk disclosure is required to be provided to the customer based on the changed information. However, if another FCM or IB introduces the customer’s account on a fully disclosed basis or a CTA directs trading in the account, then notify that Member of the changes to the customer’s information.
5. Submit a certified annual report within 90 days after the firm’s fiscal year end, or if your firm is also registered as a Broker/Dealer, within 60 days after the fiscal year end (in addition to submitting the firm’s monthly Focus II/I-FR-FCM with NFA via WinJammer).
6. For firms that offer off-exchange foreign currency futures and options contracts (FOREX) to retail customers, provide written information regarding NFA’s Background Affiliation Status Information Center (BASIC), including the website address to every current customer (in addition to sending it to every new customer when the customer opens an account).
7. For firms that offer FOREX to retail customers, review the security, capacity, credit and risk-management controls, and records provided by your electronic trading systems and certify that the requirements outlined in NFA Interpretive Notice 2-36(e) have been met. Prepare a certification, signed by a principal who is also a registered AP, and provide a hardcopy to NFA with the submission of your annual audited financial statement.

If your firm or its clients trade security futures products (futures whose underlying instrument is either a single security or a narrow-based security index), consult NFA’s website for a comprehensive listing of your requirements athttp://www.nfa.futures.org/NFA-compliance/NFA-general-compliance-issues/security-futures-products.HTML.

We recommend that you keep this email as a reference guide to ensure that all requirements are completed on time throughout the year.

We also want to remind you again: Every firm that is required to be registered as an FCM, RFED, IB, CPO or CTA in connection with its FOREX activity must be approved by NFA as a FOREX firm. NFA Members are prohibited from engaging in retail Forex transactions with these firms unless the firm has received this designation. In addition, FOREX firms must have at least one principal who is registered as an Associated Person (AP) and is approved as a FOREX AP. All individuals who solicit retail FOREX business or who supervise that activity must have taken and passed two exams — the National Commodity Futures Examination (Series 3) and the Retail Off Exchange Forex Examination (Series 34), which is a new exam focusing exclusively on Forex-related questions. However, individuals who were registered as APs, sole proprietors or floor brokers on May 22, 2008, do not need to take the Series 34 exam unless there has been a

two year gap in their registration since that date.

As always, if you need assistance with these or any other NFA requirements, please contact NFA’s Information Center at (800) 621-3570.

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Cole-Frieman & Mallon LLP provides comprehensive compliance and regulatory support for CTAs and CPOs.  Bart Mallon, Esq. can be reached directly at 415-868-5345.