May 26, 2023 By: Turnkey Trading Partners A growing number of Commodity Futures Trading Commission (“CFTC”) registrants and National Futures Association (“NFA”) members are now permanently “working from home” (“WFH”). Working from home offers flexibility and a better work life balance. It can reduce expenses and reduce commute times. Moving away from a centralized office also very often means no longer maintaining a traditional telephony and technology infrastructure. Turnkey Trading Partners (“Turnkey”) has been issuing warnings to our customers for years about the record keeping and supervisory challenges that WFH can bring upon registered firms. We most recently published a comprehensive piece on this topic January 26th of 2023 entitled “Warning: NFA focus on Work From Home Supervision”. While we have talked about record keeping and supervision obligations, we have not spent much time on the technology infrastructure portion of the conversation – until now. Record Retention Obligations Futures Commission Merchant (“FCM”), Introducing Broker (“IB”), Commodity Pool Operator (“CPO”), and Commodity Trading Advisor (“CTA”) registrants are REQUIRED to supervise commodity-interest related electronic communications of all types. In order to supervise these communications they must first be captured. Capturing all electronic staff communications can difficult if a WFH policy is in place. Each location a staff member works from introduces new and unique technical challenges in this area. At a minimum all registered firms must reliably capture business communications which occur via BOTH company and personal: E-mails Instant Online Chat Messages Mobile Text Messages Social Media Messages Certain Oral Communications How is your firm ensuring that customer communications are being properly retained with staff working at home? Firstly, do you have a list of all technology devices used at WFH locations as required by your firm’s cybersecurity program? Second, do you have a listing of all vendors and software applications being utilized by WFH staff per your firm’s third party service provider policy? If you have these lists, after reviewing them, are you allowing employees to use personal devices? Company issued devices? If personal devices are permitted, how are you capturing communications on those devices the firm does not own? Is there a policy or approach memorialized in the firms supervision procedures? How is the firm ensuring records from these devices are being backed up and retained pursuant to the firm’s disaster recovery programs? CFTC, NFA, and Exchange record retention rules? If you are unsure about any of this its impetrative to continue reading. A Personal Device Crisis When the National Futures Association updated Interpretive Notice 9002 covering branch office registration, a major shift in the industry occurred. Many industry registrants saw an opportunity to send staff home. When this transition occurred, for most firms, little consideration was given to the supervision, technology, and record keeping infrastructure of home offices. As a result, Turnkey has observed with increasing frequency situations in which traders or brokers are communicating with customers via personal emails, social media accounts, and/or cell phones. In many cases company principals are either not aware these communications are occurring or are wholly incapable of capturing and supervising them. Of particular concern to Turnkey is the increasing prevalence of mobile text messages throughout the brokerage industry. If your firm has allowed staff to work at home and utilize personal cell phones you may have made a grave mistake. Text messages are considered written digital communications. They must be captured and retained for five years. If your firm does not own and control staff cell phones it can be nearly impossible to comply with this standard. Turnkey has yet to find an employee comfortable with their employer capturing and retaining all of their business and personal text messages. Never the less that is the standard expected by regulators with WFH employees using personal cell phones for business purposes. The same is true for the use of chat and social media platforms. In this area, the brokerage and trading space leverages Twitter and LinkedIn most frequently. Does your firm monitor personal social media pages? If so, how? Do you have access to employee direct message channels? Are you capturing all communications? Will your employees allow you to do this even if you want to? Allowing the use of personal devices or other personal communication channels by work at home employees, whether you realize yet or not, ultimately leads to an eventual compliance nightmare. Centralized Cloud-Based Systems CFTC and NFA registered firms must retain most broker business communications for five (5) years no matter how they occur. The only exception to this would be for oral communications if a firm has not generated at least $5 million in gross revenue over the last three calendar years combined via CFTC Regulation 1.35. The only way Turnkey has found that modern firms with a WFH policy can accomplish this is through centralized cloud-based systems. All traders and brokers should be migrated to a unified phone system, utilize only company issued emails, and work from only authorized chat platforms and social media systems. Policies should be updated to require only the use of company owned and controlled systems. Without this centralization and level of company control, for all but the smallest firms, record retention across devices, platforms, and “work from home” locations can prove to be quite literally impossible. Taken a step further, if these records are not systematically captured, they are also nearly impossible to properly supervise. Can firms (with even a handful of brokers) genuinely represent to a regulator that they monitor broker communications if they aren’t even confident they can capture it all? Just Do It Already! WFH is not going to be going away anytime soon. The genie is out of the bottle and staff demand work mobility. Most firms realize they have holes in their system and must eventually address the above issues. NFA is also now aggressively auditing this issue. Turnkey expects many more cases and fines to be issued over the topic in 2023. Typically, Turnkey hears the following excuses when we identify this issue at firms about why it has not been addressed: It’s too expensive It’s too complicated Lack of technical competency Regulatory risk is low and brokers “can be trusted” Unfortunately, none of the above excuses will be sufficient during your firm’s next regulatory audit. As a leader in CFTC and NFA consulting our team has been working hard to find solutions to the WFH supervision and record retention issue for our customers. One way or another remote work and supervision is a reality we all must engage with. In 2023 regulators do not care about excuses as many viable technological approaches exist to meet industry standards. A Potential Solution Recently Turnkey partnered with a leading technology firm to help our clients put in place the systems necessary to allow staff to work from home properly. Turnkey sat down with our technology partners and explained what was needed, what our customers were saying, and expressed the need for cost efficient options. We believe we have developed an approach and the tools necessary for most firms to maintain record retention and supervisory compliance. Turnkey’s solution will help your firm to: Properly implement uniform E-mail hosting and synchronization Record phone lines if necessary Capture mobile text messages Ensure chat communications are retained Properly manage IT Infrastructure Ensure all CFTC and NFA records are properly backed up Not break the bank or be more expensive than a regulatory fine! Proper Communication Supervision After electronic communication records have been captured, those records then must also be monitored. A modern brokerage or trading business may capture hundreds, if not thousands, of messages a day. Do you have a plan for staying on top of this level of communication? Turnkey can not only help registered firms to properly capture communications but to also supervise those communications across all mediums. Our offerings can help you to meet your technological obligations, your compliance obligations under company cybersecurity, disaster recovery, and third-party service provider policies, and your day to day supervision needs all in one. If you have not considered your electronic record retention policies or if you have no plan in place to review broker and trader communications talk with us today. You may call Turnkey via (312) 324-0040 or by sending an email to firstname.lastname@example.org to learn more. You may also contact us by submitting our online request form here.