National Futures Association – Second Quarter 2020

The Compliance and Regulatory Consulting practice highlights regulatory information relating to the NFA from the second quarter of 2020.

CFTC Issues COVID-19 Customer Advisory on Fee Scams

The CFTC issued a Customer Advisory on April 6, 2020 alerting the public to be mindful of fraudulent schemes seeking to profit from recent job losses due to COVID-19.

Such schemes may dupe customers into believing they can earn unrealistically high profits from home but later force them to pay excessive “fees” and “taxes” to get their supposed earnings. These fraudulent claims are perpetrated by unregistered brokers selling binary options, foreign exchange (forex) programs and cryptocurrencies. The unregistered brokers carry out this attack by using social media and messaging apps targeting people who have lost their jobs and are looking for additional sources of income. 

Points to remember:

• Risks, fees and commissions should always be disclosed before accounts are opened.
• Never pay more money to withdraw from your account.
• Most individual speculators will pay taxes on gains when they file their income taxes. U.S. brokers will not collect or withhold taxes from trading accounts.
• Do not pay for trading advice or pay people to trade for you if they are not registered with the CFTC or other U.S. regulators, especially if you have only met online, communicated through messaging apps, or if they operate outside the U.S.
• Designated contract markets for binary options and retail forex dealers must also be registered with the CFTC before they can solicit U.S. customers. Check their registration status before depositing money.

Read more here.

Amendments to NFA Compliance Rule 2-29 and Related Interpretive Notice Now effective

NFA Compliance Rule 2-29 and Interpretive Notice 9003 – NFA Compliance Rule 2-29: Communications with the Public and Promotional Material require, among other things, that past performance used in promotional material be presented net of all commission, fees and expenses. The NFA recently amended these requirements to allow commodity trading advisor (CTA) Members that are also SEC-registered investment advisers (RIA) to present past performance to eligible contract participants (ECP) on a gross basis in non-public, one-on-one presentations. To rely on this limited exception, a CTA Member/RIA must:

• Provide the ECP client with a written disclosure that the performance results are presented on a gross basis and does not reflect the deduction of fees and expenses, which will reduce the client's returns
• Offer to provide the ECP client with the performance results net of any fees and expenses agreed upon by the CTA Member and the ECP client at or before exercising discretion over the client's account

These amendments became effective immediately after the April 22, 2020 announcement.

Read more here.

Notice I-20-21: Increase in Fraudulent Phishing Emails Warrants Member Vigilance

Recently, many financial institutions have reported an increase in fraudulent phishing emails, which claim to be from the institution or the institution's employees. Such emails will attempt to deceive the recipient by including domain names that are almost identical to the institution's domain. These often-urgent emails may include:

• An infected attachment or link
• A request for personal or confidential information
• A link to a fraudulent website

“Although the NFA is not aware of a specific NFA-related phishing attempt, the NFA reminds all Members to be vigilant when it comes to email requests. All legitimate emails from the NFA will come from an address ending in @nfa.futures.org, or @nfa-swaps-proficiency-requirements.moonami.com in the case of NFA's Swaps Proficiency Requirements. Always be sure to scrutinize the sender's address.” ¹ The NFA announced this on May 13, 2020.

Read more here.

Sources
¹ https://www.nfa.futures.org/news/newsNotice.asp?ArticleID=5226