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Housekeeping

Housekeeping, Reminders and Updates -- September 2016

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Financial Crimes Enforcement Network Advisory on FATF List of Jurisdiction with AML/CFT Deficiencies On September 7, 2016, the Financial Crimes Enforcement Network (“FinCEN”) issued an advisory announcing that the Financial Action Task Force (“FATF”) updated its lists of identified jurisdictions with strategic deficiencies in their frameworks to combat money laundering and the financing of terrorism and proliferation. The purpose of FATF’s lists are to track and monitor compliance with the international Anti-Money Laundering and Countering the Financing of Terrorism (“AML/CFT”) standards. The changes to FATF’s lists may affect US financial institutions’ obligation and risk-based approaches with respect to relevant jurisdictions. Updates to the FATF lists are outlined in FinCEN Advisory FIN-2016-A004. National Futures Association Changes to Form PQR and Compliance Reminders to CPOs and CTAs The National Futures Association (“NFA”) announced a minor change to the quarterly report (Form PQR) for commodity pool operators (“CPOs”). The change to the PQR was spurred by feedback and questions from NFA Members. The change effects Schedule A Part 2, Question 12: CPOs can now enter in separate boxes, the date of each participant disclosure regarding redemption halts, material limitations on redemptions and the lifting of halts or limitations. The change to the PQR will become effective for the quarter ending September 30, 2016 and will be available in EasyFile on October 7, 2016. PQR XML filers will need to update the system that is used to generate XML documents. Additionally, CPOs are reminded that failing to enter monthly rates of return for each pool in Schedule A Part 2, Question 11 will result in an error that will prohibit the CPO from submitting the report. The NFA also wanted to remind CPOs and CTAs that the late fee for failing to file timely reports, as detailed in amended NFA Compliance Rule 2-46, is effective beginning with the reports dated September 30, 2016 and later. Details regarding the amendment to Rule 2-46 were included in the Housekeeping, Reminders and Updates of the June NIBA Journal. The NFA published the information above on September 27, 2016 in Notice to Members I-16-20. FCM and IB AML Requirements As discussed above, FinCEN issued Advisory FIN-2016-A004 to announce updates to FATF’s lists of jurisdictions with AML/CFT deficiencies. NFA Member futures commission merchants (“FCMs”) and introducing brokers (“IBs”) should review the advisory and revise (if applicable) their AML programs to include changes to FATF’s lists. Proposal to Require Additional Financial Reporting by CPOs and CTAs On September 6, 2016, the NFA submitted, to the Commodity Futures Trading Commission (“CFTC”) a proposed amendment to NFA Compliance Rule 2-46 and the proposed NFA Interpretive Notice entitled NFA Compliance Rule 2-46: Reporting Financial Information on NFA Forms PQR and PR (“Proposal”). The purpose of the Proposal was to expand the financial reporting requirements for CPOs and CTAs. If approved, the Proposal would require CPOs and CTAs to report two financial ratios on Form PQR and Form PR. The ratios will allow the NFA to monitor the financial conditions of CPOs and CTAs so that firms facing financial difficulties can be identified. The Proposal intends CPOs and CTA to report the following ratios on their quarterly reports: • Current assets to current liabilities (“CA/CL Ratio”), which is designed to measure the firm’s liquidity; and • Total revenue to total expenses (“TR/TE Ratio”), which is designed to measure the firm’s operating margin. Additionally, financial record keeping requirements for CPOs and CTAs would be expanded to include records supporting the ratios’ calculations. Currently, FCMs and IBs are required to comply with such reporting/record keeping requirements. The Proposal is under review and awaits approval or disapproval from the CFTC. If the CFTC accepts the Proposal, CPOs and CTAs should expect to comply with the requirements as early as June 2017. Please review the summary of the Proposal for an explanation of the financial reporting requirements. Commodity Futures Trading Commission Swaps Dealer De Minimis Exception Commodity Futures Trading Commission (“CFTC”) Chairman Timothy Massad announced his recommendation of a one-year extension of the date on which the swap dealer de minimis threshold is scheduled to drop. The announcement was made during his remarks at the 4th Annual OTC Derivatives Summit North America on September 15, 2016. The Chairman is proposing the delay in order to give the CFTC more time to consider swap dealer registration. Dropping the threshold would subject many more companies to swap dealer registration requirements. This announcement follows the CFTC Final Report, issued last month, on the de minimis exception to swap dealer registration. The report, summary available online, was a compilation CFTC examination of the amount of swap dealing activity triggering the requirement to register as a swap dealer. As of the date of the August report, the requirements was set at $8 billion but scheduled to fall to $3 billion at the end of 2017. For further information about any of the topics covered, please feel free to contact Ruddy Gregory, PLLC (www.ruddylaw.com) or 202-797-0762.

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