Aug 31, 2021 By: Turnkey Trading Partners On August 23, 2021 NFA published a potentially significant amendment to its Interpretive Notice 9002 – “Registration Requirements: Branch Offices”. The proposal was submitted to the Commodity Futures Trading Commission (“CFTC”) under the “ten-day” provision of Section 17(j) of the Commodity Exchange Act. Briefly, this means that NFA’s suggested changes to Interpretive Notice 9002 will take effect if the CFTC does not object within 10 days. Over the years Turnkey has seen NFA propose dozens of amendments under the ten-day provision. In our experience, the CFTC very rarely moves against NFA’s suggestions. History Based on Turnkey’s experience, we believe that the proposed amendment to Notice 9002 will go into effect. We also anticipate that NFA will release official Notice 9002 text shortly thereafter. For the time being here’s what we know: As late as May of 2021 the commodity interest industry was discussing returning to work. Turnkey discussed this in our article “The End of CFTC/NFA Remote Work”. Over the course of the summer several factors began to impact registered firm’s abilities to bring staff back to the office. Covid had resurfaced as a threat to business as usual. Similarly, firms were having a difficult time convincing staff working at home to return to offices. Lastly, many registered firms had adopted hybrid work models which call for certain days at home and certain days at the office. Covid-19 and virtual audits placed the industry into an unprecedented position with regard to the Series 30 and the definition of a branch office. This issue was compounded further by CFTC and NFA no action positions from March of 2020 through early 2021 on the topic. NFA’s proposed amendments to Interpretive Notice 9002 intend to assist firms in properly managing expectations for branch offices, working from home, and office supervision. What Does the Proposal Say? Interpretive Notice 9002 requires an NFA member firm, other than a swap dealer, to list as a branch office any location other than the member’s main business address from which APs engage in activities requiring registration. NFA also requires that each branch office have a branch office manager who has successfully completed the Branch Manager Examination (Series 30). Additionally, the firm is required to conduct an annual inspection of each branch office. The proposed amendment attempts to better define what a branch office is and is not. Specifically, NFA has proposed that locations which meet the following obligations will not be considered branches under Interpretive Notice 9002: A location where one or more APs from the same household work, rent, or lease the location and; A location where the AP(s) do not hold the location out to the public as the Member’s office and; The AP(s) does not meet with customers or physically handle customer funds at the location; and Any CFTC or NFA required records created at the remote location are accessible at the firm’s main or applicable listed branch office as required under CFTC Regulation 1.31 and NFA Compliance Rule 2-10. What Does This Mean for Member Firms? As noted above, the current changes to Interpretive Notice 9002 have not yet been fully implemented by NFA. Until the final version of the updated Interpretive Notice is published it is anyone’s guess how NFA may police these adjustments. Turnkey has however applied our experience working with NFA for nearly 15 years to formulate some expectations. Turnkey believes NFA likely will: Permit firms to release a number of branch locations and series 30 branch office managers. They also will not require registration of new branch offices for staff working from home post Covid-19. Company supervisory programs will need to be re-worked and re-thought as branch locations are eliminated or staff is permanently permitted to work from home. It is Turnkey’s belief that in exchange for branch office leniency NFA will become more stringent about its expectations of supervision practices for remote APs. It is likely that NFA will move toward a more standardized “best practice” of what they expect remote AP supervision to look like. For example, Turnkey believes that APs working remotely may have to be monitored more closely via electronic means. Ways to accomplish this might include installing recording devices on phone lines, requiring staff use only company issued technology devices, and more frequent review and heavier scrutinization of email and chat communication platforms. Turnkey also believes its very likely that NFA will expect firms to continue to occasionally conduct virtual reviews of remote AP work locations in lieu of more formal onsite exams. Conclusion As NFA adopts changes to its approach with outside branch offices CFTC registered, NFA member firms should be vigilant. At this time the proposed amendments to Interpretive notice 9002 are only a start of what’s to come. In the days and weeks ahead expect NFA to provide clarity about expectations regarding branch offices and remote work going forward. As of the date of this publication Turnkey has been advising our customers to be patient before making any decision to delist branch locations or deregister series 30 branch office managers. 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