NFA Submits Public Comments on the IOSCO Customer Protection Consultation Report, Particularly Principle 5 (with YouTube Link)

The NFA submitted the attached comment letter to IOSCO regarding the Board's recommendations concerning the Protection of Client Assets Consultation Report.

The NFA asserts generally that it believes - especially in light of the MF Global and Peregrine Financial Group ("PFG") losses - that the process to refine and improve regulatory protections must be "ongoing and constant."

More specifically, the NFA states in the letter that, while it broadly supports the recommended principles set out in the Report, it has concerns regarding the means of implementation for Principle 5. (Principle 5 provides that, where the jurisdiction allows the client to waive or modify its rights under the jurisdiction's client asset protection regime, such waiver should be signed by the client and clearly explain the effect of doing so.) NFA provided the following comments regarding Principle 5:

1. "We agree that intermediaries should advise clients that, if they trade on a board of trade outside of their home jurisdiction and their funds are held outside of their home jurisdiction, their funds will be subject to the client asset protection and/or insolvency regime of the foreign jurisdiction.
2. "We further agree that any such disclosure should be clear, concise and understandable.
3. "However, it is important to note that clients that trade outside of their home jurisdiction are overwhelmingly institutional clients. They make the independent choice to trade on those markets and, as important, have the resources to obtain independent legal advice regarding the applicable laws in such jurisdictions, and the differing asset protections those jurisdictions offer in the event an insolvency occurs."

The NFA goes on to suggest that intermediaries not be obligated to "highlight material differences [in client asset protection and/or insolvency regimes] and the potential consequences of such differences so the client can make an informed decision concerning its investment."

Click here to view letter in full (links externally to NFA website).Related News: "IOSCO Publishes Recommendations Regarding the Protection of Client Assets (with Lofchie Comment)" (February 8, 2013) and "FIA Submits Public Comments on the IOSCO Customer Protection Consultation Report" (March 27, 2013).See also: Dave Brubeck, "Take Five" (links to YouTube).