Last fall Turnkey Trading Partners was the first in the industry to note that Changes to GIB and Branch Offices were likely coming. It turns our prediction was accurate and NFA recently released new guidance for how branch office and guaranteed introducing broker (“GIB”) audits must be conducted.

NFA Compliance Rule 2-9(a) places a continuing responsibility on every FCM, IB, CPO and CTA Member to diligently supervise its employees and agents in all aspects of their commodity interest activities. This includes annually visiting GIB and branch office locations.  NFA’s latest notice recognizes for the first time that given the differences in the size and complexity of CFTC and NFA firm operations, flexibility must be given in determining what constitutes diligent supervision with respect to a firm’s outside office obligations.

Starting in June, NFA will now require firms to put in place a due diligence review process for each branch office, guaranteed IB and their personnel. NFA has also stated that an effective oversight program of branch offices and guaranteed IBs also includes written supervisory policies and procedures describing a Member’s process for performing routine surveillance and supervision, as well as annual inspections that are documented through a written report. Finally, Members are responsible for ensuring that branch office and guaranteed IB personnel are properly trained to perform their duties.

This means for many firms the clear choice is to outsource branch office or GIB reviews to a qualified firm such as Turnkey Trading Partners.  Turnkey has done reviews of this type for more than a decade and currently supports some of the industry’s largest FCM’s in this area.  Given the increased scrutiny related to outside office reviews, CFTC and NFA member firms should consider giving us a call or filling out a request form to discuss our review programs.

To learn more about NFA’s proposed changes to this regulatory obligation please read here.