By: Greg Baracy

Since mid-March, the world has been grappling with the transformational effects of the Coronavirus (Covid-19) pandemic.  A fundamental shift in how industries operate is unfolding before our very eyes. Old standards are being replaced almost overnight by newer and more efficient ones.  The financial services industry, which often is a laggard with regard to its adoption of technology solutions, has not been immune.

For the last 30 years the financial markets have slowly been digitized. Long gone are the days of floor traders yelling at one another in the pits. Similarly, compliance enforcement has evolved from mandatory face to face interactions with auditors to more remote monitoring. However, as a result of Covid-19, both the Commodity Futures Trading Commission (“CFTC”) and National Futures Association (“NFA”) have had to rethink how regulatory audits can continue.  A similar re-evaluation of onsite audits for Guaranteed Introducing Broker’s (“GIB”) and Introducing Broker’s (“IB”) branch offices has also been under way.

In the past, an auditor would come to a physical office location to pore over mountains of physical paperwork. In a Covid world that is no longer possible. The result?  “Virtual” audits, a process whereby an entire regulatory exam takes place remotely, digitally, and through cloud-based file storage. How then should firms prepare for online only virtual regulatory examinations?

From the File Cabinet to the Cloud

Given the financial industries reluctance to change, far too many regulated firms still have a heavy reliance on maintaining only physical records.  This can pose a significant compliance risk if records are lost or damaged.  A policy of only maintaining physical records is further exacerbated by the current regulatory audit approach during the pandemic. Firms with a heavy reliance on physical records should begin working toward a digital solution immediately. This is necessary not only for redundancy but also to meet the new demands of remote auditors.

A transition from hard copies to digital will take time and could be painful.  Firms should begin by scanning physical documents onto local hard drives.  While doing this be sure to label each file accurately and then store them in an appropriate corresponding folder.  Take the time to think through how company records most logically can be archived.  The entire process could be slow going depending on how many physical files have been accumulated over the years.  There is a silver lining: 1) regulatory records in almost all instances are only required to be retained for 5 years from their creation date, 2) Most regulators require only the most recent 2 years of records to be readily available, and 3) once physical documents have been digitized they’ll be saved and available forever.  After company files have been converted, be sure that a process for how new files are received, scanned or saved is in place. This will ensure that going forward everything remains in digital format.

After physical records have been digitized, firms will face another tough decision.  After consulting an IT professional, firms will need to weigh the positives and negatives of saving records locally or choosing a secure cloud-based platform. In Turnkey’s experience most firms in the industry have moved away from localized servers. Almost all registrants are currently using some form of distributed, cloud based, storage. Even more sophisticated registrants use cloud-based storage offered by Amazon, Google, or Rackspace.  In our experience the most commonly used platforms for small to medium sized firms are the enterprise versions of Dropbox, Google Drive and OneDrive by Microsoft.   After choosing a cloud-based platform, then sync company hard drives with the selected service provider to ensure that all digitized documents are properly maintained.

Those unfamiliar with cloud based storage options, using Dropbox as an example, can learn all about the step by step process by clicking here.  Converting records to a digital format will allow for access to records from anywhere on Earth as long as you have an internet connection.

Virtual Review Expectations and Preparation 

Previously NFA member firms had their annual reviews conducted on-site and in-person, Covid-19 has changed all of that.  For the foreseeable future all outside office reviews, including those of FCMs, IBs, GIBs, CTAs, and CPOs will be conducted remotely via a virtual meeting of some type. This means that all the paper documents that would normally be printed out and stacked on a large table for the auditor to sift through must now be transmitted digitally. Firms that have gone to digital record keeping will be well prepared for this type of review. Firms that have not will be in for a very rude awakening.

The scheduling portion of the audit/review process will be very similar to audits of the past.  However, rather than requesting documents to be made readily available when the auditor arrives, the auditor will request documents be transmitted digitally ahead of time. This will allow for them to begin reviewing the files and discuss any follow up questions they may have during a virtual meeting.  Firms should assume going forward that they will be expected to have the ability to transmit any and all documents requested by an auditor, with no exceptions.  To Turnkey’s knowledge it is not possible or sufficient (nor is it prudent) to mail physical records to regulators, FCMs, or third-party examiners.

Virtual Review Cheat Sheet

Since the Covid-19 pandemic accelerated in mid-March, Turnkey has conducted dozens of remote examinations.  Based on our experience, below is a list of “Do’s and Don’ts” when it comes to your virtual examination:


  • Confirm as soon as possible the date/time of the virtual review from the auditor
  • Be responsive to any and all requests
  • Have all compliance related files properly labeled and stored digitally to their respective folder so they’re easy to find and to transmit
  • Meet document transmission deadlines as set forth by the auditor
  • Transmit all requested files in their entirety
  • Download and test any virtual meeting platforms that will be used to conduct the audit ahead of time
  • Reach out for help if you need assistance early; ensure you understand the digital document request and file transmission process.

Do Not:

  • Ignoring outreach from your auditor
  • Send less than the full list of requested documents
  • Transmit incomplete files or provide records in an inappropriate format
  • Avoid phone pictures, holding documents up to a video conference camera etc.
  • Wait until the last minute to transmit documents, please be respectful of request deadlines


It is Turnkey’s view that Covid-19 may have forced the financial world into keeping digital records once and for all.  This shift in how business operates has been in the works for a long time but is now front and center.  Digital records and transmission of documents is the current and future of how CFTC and NFA regulated business will operate.  In order to properly function in the “New Normal”, an adaption and migration from physical files to digital storage is critically important.  The change initially may seem a bit painful, but in the end will make operating your business much easier.  Turnkey would advise getting started today in preparation for your next digital review. The sooner the process begins, the sooner you’ll say “I should have done this years ago.”

About the Author

Greg Baracy has over 15 years of experience in the financial services industry. His expertise spans across many verticals such as investment banking, financial advisory, quantitative and qualitative analysis. His area of focus at Turnkey is in new business origination, customer on-boarding and relationship management. Greg also regularly conducts reviews of customer outside office locations for Turnkey clients. Before joining Turnkey, he managed the Mid-Atlantic, Midwest and Northeast portfolio of municipal issuers for one of the big three Wall Street Bond Rating Agencies. During his tenure, he grew the agencies portfolio to its largest size since its inception. He holds a degree in Economics and Applied Policies from Michigan State University.