As your industry advocate, the NIBA provides many services which help your business stay in compliance with NFA regulations. "Ask the NFA," is the way you can ask questions about those regulations and compliance requirements without having to call NFA directly.
Just email us at nfacomments@theniba.com and we will get the answers for you. Please keep in mind the purpose of this contact is to keep the lines of communication between NFA and NIBA members open, not to fix any specific individual concerns.
This month's questions were selected from those submitted by NIBA members over the last two months. The answers were supplied by NFA staff.
Question 1:
"In the eyes of the NFA ..is it ok for a CPO to compensate any IB to sell it's product through fee share? (In order to maintain the client relationship.) If so, what would the best verbiage to use?"
Answer:
A CPO may compensate an Introducing Broker through a fee sharing arrangement provided the arrangement and relationship are adequately disclosed to the participants of the pool(s). A CPO must fully disclose this relationship, including any conflicts of interests that this relationship may create. The disclosure should provide a full description of any actual or potential conflicts of interest. Included in the description of such conflicts must be any arrangement whereby a person may benefit, directly or indirectly or from the introduction of such account by an IB (such as payment for order flow or soft dollar arrangements).
Additionally, the CPO should be aware that it may hold a supervisory responsibility over the promotional material and sales practice tactics used by the IB that promotes the CPO's pools. The CPO may be held responsible for the misleading promotional material or sales practices performed by the IB.
Question 2:
"Are NFA audits really starting to happen unannounced? How does that even work logistically when your request lists are so long? Why has this practice changed an the IB level?"
Answer:
NFA has not changed its policy with regard to announcing examinations and continues to perform unannounced examinations when a situation warrants. For example, when NFA is concerned about the conduct of a Member or when NFA suspects imminent customer harm, an examination team may elect to arrive at a firm unannounced.
NFA recognizes that unannounced exams present additional logistical challenges and that IBs would like the opportunity to prepare for NFA examinations ahead of time. However, NFA staff work hard to perform efficient investigations and exams when they are unannounced. To do so requires balancing the need to obtain records promptly and remain sensitive to Member resources.
Question 3:
"What is the guidance regarding using NFAs logo on a member website"
Answer:
Members occasionally request permission to use the NFA's logo on their web sites, business cards, stationery or other marketing materials. NFA Members are not prohibited from using NFA's logo in promotional material as long as the presentation does not provide the appearance that NFA has endorsed the Member. NFA membership is not an endorsement or approval of a firm's operations, and any mention of membership should not imply such. It is recommended that the Member submit any piece of promotional material that makes use of NFA's logo to the pre-review program. NFA staff would be happy to review and offer input regarding logo usage.