April 29, 2022

NFA Charges Introducing Broker and its Managing Director with Recordkeeping and Supervisory Failures

Steven Lofchie Commentary by Steven Lofchie

The NFA charged a Singapore-based, CFTC-registered introducing broker ("the firm") and its managing director with failure to maintain records of oral and written transaction communications and related supervisory failures.

In the Complaint, NFA alleged that the firm violated NFA Compliance Rule 2-10(a) ("Recordkeeping") in failing to retain pre-trade communications conducted using personal cell phone applications WhatsApp and WeChat messaging services. The NFA also alleged the firm and its managing director violated its supervisory obligations with respect to record retention requirements in breach of NFA Compliance Rule 2-9(a) ("Supervision").

The respondents have 30 days to respond to the Complaint.

Commentary

The potential imposition of a large fine for each recordkeeping violation, if there is no evidence of fraud, is disconcerting. It raises a question as to how penalty amounts should be calculated. As applied to violations such as trade reporting failure or recordkeeping failures (where a flawed process can result in thousands of violations), the potential penalty amounts can quickly become astronomic.

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