By: Turnkey Trading Partners

For the last several years both the Commodity Futures Trading Commission (“CFTC”) and National Futures Association (“NFA”) have been reconsidering rules and regulations surrounding outside office supervision. The idea that registrants will always work from a static main office location is simply outdated. With the advent of remote working technology, and trading exchanges going almost entirely electronic, Associated Persons (“APs”) can work from just about anywhere. This begs the question; Does it really make sense for every AP that works away from an official company address to still be required to obtain the Series 30 license? The series 30 is still required under both CFTC regulation and NFA rule, however, it’s possible Covid my force regulators to rethink this obligation.

In 2019 NFA updated interpretive notice 9019 to address this topic. Within the revised notice flexibility was granted to firms so that they might develop a risk-based approach to outside office supervision.  Turnkey immediately began discussing this notice with our clients and preparing them for the “new normal”.  In so doing, we have become one of the country’s leading outside office review firms conducting as many as 300 “office visits” per year. This was made possible by considering risks as instructed by NFA, developing an appropriate supervisory model to monitor outside offices, and implementing a strong annual review program which includes an onsite visit to a physical office location at least once every other year.

Remote work has been one of the key topics that the Covid pandemic has brought to light.  Although flexibility was given to commodity interest brokerage and trading firms by the CFTC and NFA in 2019, many registrants were not thoughtful enough to take advantage of the so called “new normal”. Now, unfortunately, post Covid, even the above approach has been challenged.  Specifically, APs that historically worked in a main office or under a branch office manager were forced to work from home.  This has created many non-traditional “branches.”  These locations don’t fit with even the newly revised interpretive notice from above. Although regulatory relief for “at home” workers has been granted it will eventually run out.

In our experience Covid has not significantly impacted branches which were already established. At most firms, existing branches are small offices in rural locations. These locations generally experienced little disruption from the pandemic with regard to work being done at the office. The bigger issue is what to do with larger firms that had dozens of APs and staff members which are now at home and are not under a series 30 or main office structure? Will these workers be forced by regulation to take the series 30, become a branch office, or return to the main office? When will registrants determine they are no longer “operating under contingencies” pursuant to their disaster recovery plan provisions for a pandemic?

Here is what Turnkey is expecting:

  • There will not be a “normal” again in our industry.  Many firms will not invest in space like they once did. Firms have already started ending leases and leaving major cities.
  • Firms choosing to keep traditional office space have already started giving staff members the following ultimatum:
  1. A) Please come back to the office
  2. B) If you don’t come back you will be personally responsible for additional costs and supervision to stay at home. You’ll also need the series 30 and you’ll have to hit certain productivity metrics to stay with the firm
  3. C) If you don’t like option A or B you can leave the company.
  • Turnkey anticipates that the CFTC and NFA will not continue to extend work from home indefinitely. It’s likely NFA will use an interpretive notice or a notice to members that better defines the roles an AP can participate in while working away from a series 30 or the main office location. Turnkey does not feel it’s realistic to allow all registrants to work at home as associated persons without real additional oversight or some type of review process in place. We anticipate that CFTC and NFA will audit for this in the future (see below)
  • No matter what occurs firms will have to demonstrate supervision via technology. At a minimum company equipment, phone recording, internet monitoring, company cell phones, etc will have to be in place and issued to branches. We anticipate, and are already seeing, a significantly greater focus on how firms are managing staff working at home in audits. Note NFA Interp 9037which was heavily updated in 2020 but with little industry fanfare.
  • Expect that more virtual reviews will be used. It is possible NFA could allow for 1 person locations to never have on-site visits if that fits the risk-based plan a firm has in place. We don’t however think we’ll see a situation where no annual review is required. It’s too unrealistic in our view that NFA and the CFTC would do this given their mandates to protect the public. Also in our experience an annual review is critical to any outside office compliance plan.
  • Eventually Turnkey would like to see the CFTC update its regulations to state that 1 person working at a location is not a branch which requires a series 30. If they were to do this that would eliminate almost all work from home series 30 issues. Don’t expect this anytime soon.

So, while in the short term the “new normal” of the past twelve months will continue, it will not be the “next normal” of the future.  Turnkey believes that once life returns to pre-covid conditions, outside office reviews will continue to migrate toward a “risk-based” approach.  Remote examinations will be allowed for those outside office locations that meet certain “low-risk” criteria and on-site reviews of “higher-risk” offices will continue as they had before.  With regard to registration requirements, Turnkey has opined on what it thinks is the most logical solution, but it will be a slow process if or when the CFTC decides to address this issue.

About Turnkey

Since our inception Turnkey has assisted hundreds if not thousands of firms. It would be our privilege to assist in developing your outside office supervisory plan.  Please contact a Turnkey Trading Partners representative today with any questions you may have. We can be reached via phone by calling (312) 324-0040. If you’d prefer to contact us by email you may reach us using the address