With the ongoing concerns surrounding COVID-19, news is moving fast. That means government agencies, businesses, and whole industries are having to respond quickly. As of today (March 26, 2020) the National Futures Association (“NFA”) and Commodity Futures Trading Commission (“CFTC”) have issued several notices. Some of these notices have been about temporary regulatory relief and others have been about new regulatory obligations that must be considered.  Every FCM, IB, CTA, and CPO, must be prepared to address the current notices and any others which may be issued in the future.

Now is not the time to get complacent with compliance obligations. Rather, here are some things that all registered firms must be working through and adjusting within their policies to stay compliant.

Business Continuity and Disaster Recovery (“BCDR”)

Business Continuity and Disaster Recovery Plans are intended to address what happens when one area of the business is affected.  The Coronavirus is a “novel” situation that is likely affecting several areas of your business. NFA is requiring Members to check that their BCDR is up to date. They are also encouraging firms to include appropriate measures to address the immediate issues surrounding COVID-19. In other words they would like for firms to add a section covering Pandemics if one has not already been included.

At a minimum, the BCDR needs to have a current listing of key employees and their contact information; NFA ORS should also have up to date contact information to get in touch with Members as quickly as possible. You should also assess the risks to key relationships and vendors, including FCMs, communications providers, and any service that is necessary to conduct business. There are some providers that may not come to mind as a necessity; Turnkey maintains a list of mission critical providers that should be considered should you need help. You should understand how your business may be materially impacted by third parties, the Coronavirus, and any potential government actions. For example what would your company do if the US mail system were to collapse?

Information Systems Security Program (“ISSP”)

Related to the BCDR, your Information Systems Security Program should be up to date and adjusted for any changes to your critical hardware and software at this time. Members with employees out of the office must consider a variety of potential new issues. For example employees may be connecting to company systems via uncontrolled networks, possibly using personal equipment, and may have other physical security considerations. With regard to physical security we aren’t talking about alarm systems, many families also have kids working from home sharing computers with Mom and Dad!  There are many unaccounted threats that can arise in unprecedented times, but getting ahead of those threats is essential to best protecting your business.

The CFTC provided its registrants with a notice that includes numerous helpful links and articles dealing with this issue. The notice includes information on potential scams, ensuring security during a time when your entire workforce may be working remotely, and guidance on how to minimize the impact of a pandemic on your business. If you are not familiar with this notice please contact Turnkey today and we can provide a copy.

Supervision

Almost all companies have at least some employees working remotely. Given this circumstance, Members are strongly encouraged to produce procedures and training for how employees should be handling the firm’s business while out of the office. This raises many concerns; some of which we have briefly detailed below.

• Branch Offices

For Members with branch offices that may have their branch office manager working from home, NFA is not pursuing disciplinary action, provided you follow certain procedures. You must implement alternative supervisory methods and ensure that recordkeeping requirements are met. If you have been using Turnkey to conduct your branch office reviews in the past year, you are aware that Turnkey has been encouraging our clients to have localized BCDRs and ISSPs for their branch offices. Having those procedures on hand, combined with the new branch office procedures that went into effect last year, ensures that your firm is prepared and compliant. Whether or not you have the most up-to-date procedures for your branch offices, you will need to document any new procedures being used during the pandemic.

• FCMs and IBs

The CFTC has released notices granting Futures Commission Merchants, Introducing Brokers, Swap Dealers, Retail Foreign Exchange Dealers, Floor Brokers, Swap Execution Facilities, and Designated Contract Markets various temporary reliefs for recording of oral communications and time stamping requirements based on their registrations. For FCMs and IBs, this temporary relief is valid until June 30, 2020 and registrants are expected to return to complete compliance with all obligations as risks decrease. Registrants are also expected to establish and maintain a reasonably designed supervisory system for activities by personnel working remotely. Turnkey has designed several supervisory systems and is prepared to assist if you need help meeting the necessary regulatory requirements.

• Oral Communications and Recordings

As employees work from home, it may be impossible to meet the recording requirements for oral communications. Your revised pandemic based BCDR must necessitate that the employees required to use recorded lines are absent from the normal business site – so what to do?  Where recording oral conversations is impracticable, employees must maintain a written record of the communications in accordance with CFTC Regulation 1.35. The record must include, but is not limited to, the date and time of the communication, identifying information of the person with whom the employee is having conversation, and the subject matter of the conversation. Members must take affirmative action to collect any written materials pertaining to oral communications and follow normal record keeping requirements. Firms must have a plan in place to consider this.

• Time Stamps and Order Handling

As with oral communications, your BCDR must require for the employees who use time stamps to be away from the office. You may want to consult Turnkey to assist with creating a plan which accounts for this pandemic. Employees working remotely must still record the date and time of orders, to the nearest minute, in accordance with CFTC Regulation 1.35 or 155.3. Firms may want to consider providing employees with forms which specify these requirements and make it easier for them to follow. Electronic order entry will not work in every instance, for every order, at every office!

Conclusion

While the CFTC is granting temporary relief in these instances, NFA is clear that they plan to take a practical approach in determining whether to discipline firms during this unprecedented time. It is important that you strictly follow the guidance for relief and not risk your firm’s health by incorrectly relying on relief. There will likely be more notices from the CFTC and NFA in the coming days.

Turnkey is maintaining an up to date running tally of any changes related to the pandemic. Please sign up for our newsletter and bookmark our Covid-19 udpate page for more information. Our staff is remaining up to date on all regulatory requirements and relief to best serve customers in navigating the quickly changing regulatory and business landscape. Please contact us today if you require any assistance via (312) 324-0040 or email us via info@turnkeytradingpartners.com

About the Author

Charlene Osmanski is a senior consultant for Turnkey Trading Partners, an award winning firm specializing in supporting brokerage industry operational, compliance, and accounting needs.  Charlene is a member of the State of Illinois Bar, and holds a Juris Doctor from Chicago-Kent College of Law. She can be reached via email at charlene@turnkeytradingpartners.com.