FCM Settles NFA Charges Related to Outsourced Recordkeeping
A CFTC-registered futures commission merchant ("FCM") settled NFA charges for recordkeeping, reporting, disclosure and supervision failures.
In its Complaint, NFA alleged that the firm outsourced its back-office system and data management to a third-party service provider that experienced a software code failure. NFA asserted that the third-party service provider was unable to process and record executed trades for the swap dealer's customers, impacting roughly 7,000 trades in nearly 700 customer accounts. The failures led to recordkeeping errors that caused deficiencies in the FCM's daily segregation reports and confirmation statements.
According to the Business Conduct Committee Decision, the FCM failed to:
- maintain adequate books and records, in violation of NFA Compliance Rule 2-10 ("Recordkeeping");
- file timely and accurate daily segregation reports, monthly financial reports and segregated investment detail reports ("SIDRs"), in violation of NFA Financial Requirements in Section 1 ("Futures Commission Merchant Financial Requirements") and Section 16 ("FCM Financial Practices and Excess Segregated Funds/Secured Amount/Cleared Swaps Customer Collateral Disbursements");
- provide confirmation statements to customers, in violation of NFA Compliance Rule 2-26 ("FCM and IB Regulations"); and
- implement a supervisory framework for its outsourcing, as per NFA Compliance Rule 2-9 ("Supervision").
To settle the charges, the firm accepted the findings in the Complaint and agreed to pay a $75,000 fine.