Mar 05, 2019 At any given time, Turnkey Trading Partners may be assisting a dozen or more National Futures Association (“NFA”) members with their upcoming or on-going regulatory examinations. This gives Turnkey a deep level of insight into where NFA is focusing its latest review efforts. For 2019 the following areas seem to be where NFA is looking for deficiencies. Focus areas range from a firm’s information systems security program (“ISSP”) or cybersecurity policy, to more traditional trouble spots like accounting or promotional material best practices. The following is a brief summary of the most common deficiency and focus areas Turnkey has been seeing through the first quarter of 2019. CTA, CPO, IB, & FCM Accounting One of the easiest areas to properly manage is often the most overlooked. Accounting violations during commodity trading advisors (“CTA”), commodity pool operators (“CPO”), introducing brokers (“IB”), and futures commission merchants (“FCM”) audits are still surprisingly common. Of all the areas registrants can choose to outsource, accounting may be the easiest and most affordable. Turnkey has seen the following with somewhat regular frequency: Failure to use accrual accounting or inability to produce accurate financial statements Items in accounting have no supporting documentation (side deals/expense sharing/fee splits) Fund financial statements have no signed affirmation or are not distributed properly Monthly and/or quarterly capital computations are not maintained of filed on time Improperly classified current vs non-current assets and/or inaccurate accrued liabilities Rate of return presentations not properly disclosed or footnoted for material assumptions Turnkey offers outsourced accounting to many clients. To learn more about how Turnkey can ensure company accounting practices are in line with CFTC and NFA expectations contact us today. Compliance and Other Regulatory Matters Accounting is relatively easy to get right. Compliance and other regulatory matters can prove to be much more challenging for even the most experienced registrants. Turnkey is observing the following areas of concern with a relatively high level of frequency: Improper staff registrations; in particular firms often improperly list principals Fee and conflict of interest disclosures are either not made or are improperly made Inaccurate CTA/CPO trading strategy descriptions which do not reflect the trading conducted Promotional material is not balanced with respect to profit potential and risk of loss Statements of opinion are made with no reasonable basis in fact or support available Bunched/Blocked orders are not properly monitored or supervised Communications related to order execution are not maintained or available Training and Review Requirements This area is also incredibly easy to get right. Simply having a process in place and maintaining a calendar of review dates can do wonders for a firm’s training and review obligations. Nevertheless, training and ongoing reviews make up a large percentage of regulatory findings every year: AML, Cybersecurity, Ethics training missed No annual self-examination checklist on file No annual disaster recovery, ISSP, or AML testing on file Missed or insufficient annual branch office audits There is no reason for firms to miss ongoing review or annual training obligations. Contact Turnkey today to discuss our training and review process suggestions. Cybersecurity (ISSP) Perhaps the newest and most commonly deficient area of compliance operations in 2019 comes from the firm’s ISSP. NFA is now testing ISSPs and has a number of areas it is focusing on. As a reminder firms that have not yet updated their program’s for NFA’s April 1, 2019 changes please do so now. The following are concerns Turnkey has seen in this area: ISSP not approved in writing by senior management Incomplete hardware and/or software inventory Internal and external threats not adequately identified Threats posed from third party vendors not addressed Lack of incident response and recovery plan Not reviewed annually or updated for incidents noted in prior year Turnkey has become a leader in developing ISSP programs for NFA member firms. In fact, Turnkey was named Best Cybersecurity Solution by CTA Intelligence in 2017. Firm’s looking for assistance in developing or updating their ISSP to conform to the latest regulatory standards should contact us today. Summary It can be easy to let simple regulatory obligations lapse while focusing on running a successful brokerage or trading business. Most accounting, regulatory, and other compliance related obligations can be outsourced affordably. To learn more about outsourcing options please contact Turnkey Trading Partners today – info@turnkeytradingpartners.com or (312) 324-0040. If you’re not a subscriber to our newsletter? You’re missing out! Sign up and request to receive more information here.