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Join our session to explore the critical aspects of the NFA audit process, moderated by Regina Thoele. Learn from expert panelists Larry Block from Kenmar Group, Joseph Picone from NFA Lennox Compass, and others. We'll discuss important concerns identified during firm reviews, methods to prepare effectively for NFA audits, and the utilization of self-examination checklists. Discover additional resources, common audit deficiencies, and key areas of focus such as compliance, financial reporting, and performance evaluation to ensure your firm's readiness.
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Session 5:The NFA Audit ProcessModerator: Regina Thoele, NFA Panelists:Larry Block, Kenmar GroupJoseph Picone, NFALennox Compass, NFA
Risk-Based Audit Selection • Concerns noted during a review of the firm’s promotional materials, disclosure documents and/or financial statements • Funds under management or degree of leverage • Customer complaints • Referrals NFA receives from other agencies • Time since registration or last audit
How to Prepare for an NFA Audit • Self-Examination Checklist • First step toward a successful NFA audit • General operations checklist • Supplemental checklists for FCMs, IBs, CPOs and CTAs • Signed attestation required • If you have questions, contact NFA at (800) 621-3570
Other Available Resources • Publication: NFA Regulatory Requirements for FCMs, IBs, CPOs and CTAs • NFA Podcast (10 minutes) and Web Seminar (one hour): “Preparing for an NFA Audit” • NFA Podcast (10 minutes): “Registration Issues – Principals, APs and Branch Offices • Appendices to Self-Exam Checklist: AML, ethics training, privacy policy, disaster recovery
NFA Audit Process • Pre-exam • Planning Interview • Initial Record Request • Fieldwork • Opening and Exit Interviews • Document Review/Testing • Additional Record Requests • Completion of Audit • Report • Corrective Action
Areas of Focus • Registration of APs, Principals, Other Firms • Promotional Material • Disclosure and Performance Reporting • Account Opening • Trading • Bunched Orders • Supervision • Handling of Pool Funds • Financial Reporting
CPO Audits: New Areas of Focus • Valuation Policies • - Reasonableness • - Conflicts of Interest • - Disclosure • Exception Reports • FAS 157 Hierarchy
CPO Audits: New Areas of Focus • Side Letters/Preferred Redemptions • - Compliance with Lock-Up or Gate Provisions • - Disclosure • - Just and Equitable Principles
CPO Audits: New Areas of Focus • Side Pocket Investments • - Reasonableness of the Classification • - Valuation • Strategy Promotion • - Due Diligence Process • - Multi-Advisor • - Fund-of-Funds
Registration • Unlisted principals • Unregistered Associated Persons • Failing to update registration records • Bylaw 1101
Bylaw 1101: Due Diligence • Does the account appear to require registration? • If not, why not (exemption, offshore) • If yes, why and is it registered? • Is the pool operator an NFA member?
Bylaw 1101: Where to look • BASIC • Part 4 Exemption Look-Up in ORS and BASIC • Ask firm for copy of exemption • In all cases, document findings
Disclosure Documents • Operations inconsistent with disclosure • Fees • Redemptions • Trading Strategy • All required performance not disclosed • Performance capsule information inaccurate • Number of accounts • Total assets under management
Bunched Orders • Procedures for allocating split fills or partial fills • CTA must conduct a quarterly review of accounts to ensure that bunched orders are allocated in a non-preferential manner
Pool Financial Reporting • Incomplete account statements • Information only included for the individual pool participant • Statements must include information for the pool in its entirety • Statements do not properly itemize all required information • Additions/Withdrawals • NAV per unit
Pool Financial Reporting • Required information beneath the oath on each account statement: • The name of the individual signing the account statement • The capacity in which he or she is signing • The name of the commodity pool operator for whom he or she is signing • The name of the commodity pool for which the statement is being distributed
Performance • No supporting worksheets • Inappropriate use of composite performance capsules • Details covered during Session 2
Other Items • Distribute a privacy policy to its customers upon establishing the relationship and on an annual basis • Attend ethics training within the time period established in firm’s procedures • Review/test disaster recovery plan at least annually • Complete Self-Exam Checklist annually
General Pool Fraud • Paul Greenwood and Stephen Walsh (09-MRA-002) • Raleigh Capital (09-MRA-006) • M25 and M37 (09-MRA-004) • IAG Capital Management (10-MRA-002)
Regulatory Response • Prohibition on Pools loaning money to the CPO or an affiliate • Effective October 1, 2009 • Pre-existing Loans
Pending Matters • CTA Performance • Unreported accounts • Overstated Rates of Return • Misappropriation of Pool Funds • False information to NFA • Comingling pool funds • Inadequate disclosure
Session 5:The NFA Audit ProcessPanelists:Roxanne Bennett, Price Asset ManagementJennifer Sunu, NFAMatt Pendell, NFA
