By: Turnkey Trading Partners

Turnkey is one of the largest CFTC and NFA consulting providers in the United States by number of clients. As a result, we support our customers through many NFA examinations each calendar year. Recently Turnkey has noticed an uptick in NFA’s consideration of how member firms are supervising staff working from home.

Branch and GIB Review Standards

Readers of Turnkey articles will recall that prior to Covid, NFA adjusted branch office supervision expectations via Interpretive Notice 9019. More specifically in mid-2019 NFA allowed for a “risk based” approach to onsite office examinations. At that time firms were allowed to conduct an onsite review of a branch or GIB location every other year but ONLY if they completed and documented a risk assessment to justify the decision. The risk assessment of an outside office location was required to consider at a minimum the following:

  • The amount of revenue generated by the location
  • The type of business conducted
  • Solicitation practices of the location
  • Number of APs, complaints, and amount of experience of APs at the location
  • Disciplinary history and/or frequency of problems or concerns at the location

Readers may also want to revisit our article on this topic from the time here. If your firm has not completed a risk assessment of all outside office locations you should do so immediately.

Covid Relief Expired

Readers will also recall that in February of 2022 NFA extended relief to member firms conducting virtual reviews of outside offices due to Covid. Turnkey wrote about this obligation at the time which can be viewed here. NFA’s relief recently expired on December 31, 2022. This is the primary reason for the uptick in NFA testing of branch and GIB supervision to start 2023.  NFA currently takes the position that branch offices and GIBs for all firms must be visited onsite AT LEAST once every other year. To support this determination a risk assessment must have been completed by the member firm to justify the location’s audit schedule as noted above.

Work From Home Complication

Turnkey has observed many of our customers incorrectly believing that they can conduct virtual branch office reviews every year. That is simply not the case under existing NFA rules as noted above. Other of our customers have thought that if they take advantage of NFA Interpretive Notice 9002 they can eliminate branch offices for many staff members working at home. That may be partially true, but as Turnkey penned in August of 2021 the firm must ensure any staff working from home meets all applicable obligations to do so. Additionally, member firms should, at a minimum, annually verify that work from home staff are still upholding NFA standards under Interpretive Notice 9002. While staff working from home may not have to undergo an onsite review, documentation about how these staff members are supervised most certainly should be in place.

Take Away

NFA is getting more aggressive about staff working from home. Turnkey has observed throughout the industry member firms failing to realize onsite reviews are back. Many firms are potentially setting themselves up for regulatory violations by not conducting a proper risk assessment of all outside office locations. This includes both branches and work from home offices. At a minimum Turnkey recommends that firms keep a memo or attestation on file as to the criterion evaluated when allowing staff to work from home. Similarly, Turnkey encourages firms to consider whether or not an onsite visit to an office location, whether an official branch or home office, is warranted. 2023 appears to be the year that NFA finally gets more serious about remote work supervision. It would be wise to prepare ahead of time for their eventual questions surrounding this area of compliance.

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