In a July 7, 2014 Notice to Members, the National Futures Association (“NFA”) announced a reduction in the assessment fee paid by futures commission merchants (“FCMs”) Members. The NFA’s Board of Directors approved the reduced assessment fee on May 15, 2014. The reduction is a result of an amendment to NFA Bylaw 1301, which covers dues and assessments of NFA Members. Effective October 1, 2014, the amended paragraph (b) of Bylaw 1301will reduce the assessment fee by fifty percent (50%). Each FCM member will pay, to the NFA, an assessment equal to $0.02 for each commodity futures contract traded on a round-turn basis or $0.01 for each option contract traded on a per trade basis. This fee reduction applies to commodity futures contracts and options contract subject to the rules of the contract market and subject to the rules of a foreign board of trade. The NFA believes the lower assessment fee could yield annual savings of approximately $20 million for market participants.
The NFA’s Board of Directors sought a reduction in fees based on recent trends in public trading volume growth. The reduction in the assessment fee returns the rate to what was in place from 2008 through 2010. A future change in trading volume may prompt the Board of Directors to increase or decrease the time the new assessment fee will be in place.
In a June 23, 2014 Press Release, the NFA announced that its Board of Directors approved a ban on the use of credit cards to fund retail forex and futures accounts. The ban was approved by the Board of Directors in May. This announcement follows the NFA’s July 18, 2014 letter to the Commodity Futures Trading Commission (“CFTC”) seeking approval of the Interpretive Notice to NFA Compliance Rules 2-4 and 2-36: Prohibition on the Use of Certain Electronic Funding Mechanism.
An extensive study and analysis was conducted on accounts funded by credit cards or other electronic methods tied to credit cards by the NFA’s Compliance and Risk Committee (“CRC”). The NFA’s study reviewed the business practices of forex dealer members (“FDMs”) and over 15,000 retail forex accounts held at seven (7) FDMs. The study noted an overwhelming amount of the accounts were funded by customers with a relatively low income using credit cards or borrowed funds. Also, a majority of those funds were unprofitable. The prohibition affects FCMs and FDMs even though the NFA’s investigation revealed that FCMs had not accepted such account funding methods. The CRC met with FDMs and received comments opposed to the ban. The ban is subject to approval by the CFTC but no amendments to the ruling are expected.
In an effort to make the financial system more transparent the Financial Crimes Enforcement Network (“FinCEN”) issued a Notice of Proposed Rulemaking (“NPRM”) to amend existing Bank Secrecy Act (“BSA”) regulations to block money laundering by anonymous companies engaged in illegal activities. The NPRM is intended to clarify, strengthen and enhance customer due diligence requirements for banks and other financial institutions such as broker-dealers in securities, mutual funds, FCMs and introducing brokers in commodities. The enhanced customer due diligence requirements pertain specifically to the beneficial ownership rules. Under the new rule, financial institutions will be required to properly identify and verify any individual who owns twenty-five percent (25%) or more of an entity and an individual who controls the entity.
The purpose of the NPRM is not only to prevent money laundering by anonymous companies but to also further the United States (“U.S”) international commitments, specifically the G-8 Action Plan for Transparency of Company Ownership and Control from 2013. The rule is intended to make the U.S. financial system more transparent by exposing those attempting to launder money acquired through illicit activities because they will no longer be able to remain anonymous.
FinCEN has stated that NPRM clarifies that effective customer due diligence requires four (4) key elements. The key elements, commonly referred to as the pillars of anti-money laundering (“AML”) are: identifying and verifying the identity of customers; identifying and verifying the beneficial owners of legal entity customers; understanding the nature and purpose of customer relationships; and conducting ongoing monitoring to maintain and update customer information and to identify/report suspicious transactions. If approved, the proposed rules would contain explicit customer due diligence requirements and would include a new regulatory requirement to identify beneficial owners of legal entity customers. The identification and verification of beneficial ownership will be conducted in a standardized format provided by FinCEN.
FinCEN notes that the pre-existing, minimum AML requirements outlined in the BSA and those included in regulations issued by self-regulatory organizations (“SROs”) are substantively the same as the changes covered in the NPRM. The Department of Treasury intends for the enhanced customer due diligence requirements to be consistent with, and not to supersede any regulation or guidance from federal regulators or any SRO relating to customer identification and the verification of the identities of legal entity customers. Financial institutions with AML requirements will need to understand the full impact of the proposed changes, specifically their obligations and adapting policies and procedures to remain compliant.