Ethics training remains a supervisory obligation under NFA’s Compliance Rules 2-9 and 2-36. Despite the 2001 repeal of specific regulations, firms must maintain high ethical standards and regularly update training to reflect changes in industry standards, technology, and regulations. Due likely to the vagueness of this position, the team at Turnkey Trading Partners (“Turnkey”) have noticed a lot of confusion about the ethics training requirements expected of National Futures Association (“NFA”) member firms. Namely, who is required to complete ethics training and how often should ethics training be taken?

How often should Ethics Training be taken?

The Commodity Futures Trading Commission (“CFTC”) mandates that new registrants must attend ethics training sessions within six months of registration and that all registrants receive such training periodically. However, the definition of “periodic” remains elusive. The National Futures Association (“NFA”) states, “Good business practice dictates that employees receive periodic training to keep them cognizant of these developments and their ethical implications.”

This ambiguity raises the question: what does “periodic” mean according to the NFA and CFTC? While much of the literature suggests that “periodic” refers to training whenever significant industry changes occur, an unwritten rule in the commodity futures space has long held that ethics training should occur every three years. This is antiquated thinking and does not capture the spirit of the training interpretations and rules.

We argue that if ethics training is an ongoing obligation, it should be conducted in response to new rules, regulations, or industry changes.  If this is indeed the case, then every three years is insufficient. Over just the last three years we have seen new third-party service provider obligations,  changes to branch office definitions and work-from-home supervision requirements, and increased monitoring of cell phone communications just to name a few industry changes. It would seem foolish to say that a firm is keeping up on its supervisory duties by then only taking ethics every three years. At a bare minimum, Turnkey believes ethics training should be conducted at least annually.

It is our opinion, that ethics training is as crucial as anti-money laundering (AML) and cybersecurity training, which are conducted annually. Adopting an annual schedule for ethics training would ensure that all personnel stay informed and compliant with the latest ethical standards and regulatory changes.

Who is required to take Ethics Training?

Once again NFA has left this to the member firms to figure out without giving any specific guidelines. Turnkey would argue that anyone working for an NFA member firm should take at a bare minimum AML, Cybersecurity, and Ethics training. With that being said, arguably the most important subject to understand for both associated persons and lay employees alike would be ethics. Ethics as defined by Turnkey is acting honestly and fairly with due skill, care, and diligence in the best interest of the customers and integrity of the market while observing just and equitable principles of trade. Ethics training is recommended for all staff working at regulated financial industry brokerage and trading firms. It is required for all associated persons and company principals. When considering who should take Ethics training at your firm there really is not any rationale to omit any personnel. All regulated firms should strive for every team member to properly interact with clients, make the correct operational decisions, and above all to remain compliant even when stressful or even difficult business decisions must be made.

Other considerations for your Firm’s Ethics program

Procedures: Firms should have written procedures outlining their ethics training programs, including topics covered, trainers, training format, frequency, and documentation methods.

Content: Training should cover relevant laws and regulations, ethical trading principles, supervisory systems, customer financial assessment, disclosure obligations, and conflict of interest management. Training should be tailored to the specific roles and obligations of the firm’s personnel.

Training Providers: Independent and in-house training are acceptable, provided trainers are qualified and not under investigation or barred from registration.

Training Format and Frequency: Training can be delivered through various media, and the format should suit the firm’s operations. The frequency of training should be determined by the firm’s business model and workforce composition.

Documentation: Firms must document their compliance with training procedures, keeping records of materials distributed and training sessions conducted.

Other Self-Regulatory Organizations: Members should review ethics training requirements of other organizations they are affiliated with.

Members who cultivate a corporate culture of high ethical behavior will deliver superior service to their customers. By staying informed about evolving industry standards and implementing a robust ethics training program, Members and their Associates can consistently uphold the high ethical standards they have established. Maintaining high ethical standards through comprehensive and regular ethics training is indispensable for NFA member firms. While the exact frequency of this training remains somewhat ambiguous, Turnkey Trading Partners advocates for an annual schedule to keep up with the rapid changes in industry standards and regulations. Ethics training is not only a regulatory requirement but also a fundamental component of a firm’s commitment to integrity and customer trust. By ensuring that all personnel, from associated persons to lay employees, receive consistent and relevant ethics training, firms can foster a culture of ethical behavior that enhances their reputation and service quality. Implementing well-documented procedures, tailored content, and qualified training providers will help firms meet their supervisory obligations and navigate the complexities of the evolving financial landscape effectively.