Nov 30, 2021 By Susan Osmanski – Turnkey Trading Partners The National Futures Association (“NFA”) Self-Examination Questionnaire is designed to assist Commodity Futures Trading Commission (“CFTC”) registered, NFA Member firms in meeting their compliance obligations. In Turnkey’s view, this is one of the best compliance tools made available by NFA. The goal of the checklist is to aid commodity interest brokerage and trading firms in recognizing potential problems. NFA also uses the Questionnaire to alert firms to potential compliance or operational procedural changes which may be required or focused upon during routine examinations. NFA’s expectation is that the Self-Exam Questionnaire be completed at least once annually. NFA also expects written documentation related to the completion of the Questionnaire to be on file at member firms. The Latest Questionnaire As one of the industry’s leading CFTC and NFA consulting firms, Turnkey Trading Partners (“Turnkey”) pays close attention to NFA updates to the Questionnaire. For firms who are unaware the most recent occurred August 17, 2021. When these updates are made NFA has the expectation that firms will use the most current version of the Questionnaire. Turnkey’s viewpoint has long been that if NFA has included a change to the Self-Exam checklist, then it is important to immediately address and implement that change. Often, it has been Turnkey’s experience that NFA may be signaling that the issue in question will become an audit focus or regulatory enforcement priority in near future. Unfortunately, unless firms are actively tracking and following these changes it can be nearly impossible to follow or adhere to NFA’s current expectations. Subtle Regulatory Adjustments Often the changes included in each successive revision of the Self-Exam Questionnaire are subtle. While NFA has begun publishing a summary of changes they do not include the details of said changes. Since May of 2021 NFA has made a variety of high profile adjustments. For example, this year a major new appendix was added entitled “Appendix E – Use of Third Party Service Providers.” Turnkey has been writing about this obligation for months and working with our customers to ensure compliance. Firms which have not yet developed a Third-Party Service Provider (“TPSP”) policy must do so immediately since this was required no later than September 30, 2021. This year’s changes also include Amendments to NFA Compliance Rule 2-46 which provide additional clarification on calculating the quarterly ratios reported on the CPO Form PQR and CTA Form PR. In this instance the adjustments discuss CPO Member requirements to file NFA Form PQR within 60 days of each calendar quarter end; Added clarification on calculating the quarterly ratios reported on the CPO Form PQR. Continued Electronic Communications Focus Readers of this newsletter may recall that in 2020 Turnkey pointed out that NFA had included several changes to the Website/Social Media section of the Questionnaire. These changes were applicable to all Member firms. The most notable of these was: “Does the Member have written procedures to review electronic communications and supervisory procedures that are reasonably designed to ensure personnel are not using unauthorized electronic communications or platforms to conduct business on its behalf?” As expected, throughout 2021 Turnkey assisted our customers in navigating NFA examinations where there was an explicit focus on this adjustment. As of today, NFA expects all member firms to have written policies for supervisory procedures related to the use of instant messages, text messages, social media messaging apps, and other electronic communication means. In some cases NFA has called upon members to ensure personnel are NOT doing something which can be challenging to document. While a firm should and can monitor electronic communications it has access to, monitoring unauthorized communications can be significantly more challenging. This is increasingly important given NFA’s changes to branch office obligations under Interpretive Notice 9002 which has allowed more staff to work from remote locations than ever before. Turnkey Can Help Turnkey recommends that at a minimum, written Policies and Procedures be updated annually. Additionally, we encourage all of our Introducing Broker (“IB”), Commodity Trading Advisor (“CTA”), and Commodity Pool Operator (“CPO”) clients to stay informed about regulatory changes and not to rely solely on their FCMs for guidance. The NFA-Self-Examination Questionnaire is a valuable tool to ensure commodity interest operations, procedures, and written documentation are not only compliant with the current rules, but also meet the expectations NFA has when they conduct an examination. Turnkey is one of the industry’s oldest and most decorated consulting firms. We have been named “Best” over a dozen times in our 15 year history according to a variety of leading industry publications. Please contact us at any time to speak with one of our compliance specialists about how we might be able to assist in meeting regulatory, operational, or accounting needs. About the Author Susan Osmanski serves as the President of Turnkey Trading Partners. She has been actively involved in the commodity futures industry for nearly thirty years. Her career began in fund management where she was responsible for the administration of eighteen affiliated public and private commodity funds. Susan has assisted hundreds of registered CFTC and NFA member firms. Her reputation and insight was noted when she was selected to serve on the Advisory Board for the Commodity Customer Coalition (“CCC”). With her assistance, the CCC was able to help thousands of every day commodity customers recover from both the MF Global and Peregrine Financial Group (“PFG”) collapses. Throughout her career Susan has authored a number of articles for industry publications, participated in numerous conferences as a speaker, and has been asked to be a panel participant on a variety of occasions.