| Americas | Articles
As registrants adopt hybrid working as the new norm, NFA is changing how it conducts examinations, taking a risk-based approach to on-site exams.
Over the last two years, for obvious reasons, all NFA examinations were performed without an on-site component. Now, increasingly the approach to examinations includes a face-to-face element, particularly when it comes to speaking with senior staff and reviewing how closely procedures are followed.
Where is the current focus for NFA examinations?
During an NFA examination, members can expect the regulator to review the systems and processes in place to adequately supervise their employees and associates in a remote environment. In so doing, the Member needs to ensure that it maintains an adequate business continuity/disaster recovery plan that has been updated to reflect its current operations; there are adequate systems in place to monitor activities of associated persons (APs) working remotely, including monitoring of communications with clients, prospects, and investors, and obtaining and retaining trade-related data. Members must also ensure that all required records are retained in accordance with the Member’s retention policy, CFTC regulations and NFA rules.
Cybersecurity continues to be a key area of focus given the increased reliance on technology to perform functions in the normal course of business. NFA’s Interpretive Notice 9070 which requires firms to adopt a written information systems security program (ISSP) states that members should regularly review the effectiveness of their ISSPs and make adjustments, as appropriate. In this hybrid environment, firms will need to ensure that their systems and policies are functioning effectively and are consistent with the Member’s documented safeguards and controls.
During the onsite portion of the examination, certain member firms will be required to demonstrate that they have implemented an effective internal controls framework, this process generally involves the employees performing certain functions in the presence of examination staff to reasonably determine that the function is carried out in accordance with the firm’s written procedures and/or NFA rules.
Members can also expect the onsite portion of the exam to include more conversations with key personnel to allow exam staff to gain a better understanding of the firm’s operations and address complex issues that warrant further clarification.
We can help
Bovill’s US team includes specialists in NFA regulation with recent experience of examinations. We also have regulatory experts across the world who specialize in particular areas such as monitoring and operational resilience.
Our next webinar will look in more detail at the NFA’s current focus and reflect on both the content of the Regulatory Workshop and the recent Townhall. We will be providing tips on getting ready for an onsite exam, look at common deficiencies identified in recent examinations and talk through recent regulatory updates.
