On February 11, 2025, the National Futures Association (NFA) issued Notice I-25-05, providing critical compliance updates and educational resources for Futures Commission Merchants (FCM’s), Forex Dealer Members (FDM’s), and Introducing Brokers (IB’s). This notice underscores the need for firms to assess their compliance programs, address identified deficiencies and adapt to evolving regulatory requirements.
We’ve reviewed the Notice I-25-05 focuses on three core areas for you:
- Educational Resources for Compliance
- Enhanced materials covering anti-money laundering (AML) programs, cybersecurity measures, and risk management frameworks.
- Guidance on the latest customer due diligence (CDD) requirements and reporting obligations.
- New training modules for compliance officers and registered representatives to ensure up-to-date knowledge of regulatory expectations.
- Common Compliance Deficiencies
- Inadequate supervisory control over trading and customer fund protection.
- Insufficient record-keeping practices leading to regulatory breaches.
- Lapses in internal risk assessment frameworks, particularly in relation to high-frequency trading and algorithmic trading strategies.
- Failure to adequately document internal investigations related to potential compliance violations.
- Regulatory Enforcement and Updates
- Changes in audit procedures for FCM’s and IB’s, increasing scrutiny on capital adequacy and segregation of customer funds.
- Strengthened enforcement actions related to misstatements in regulatory filings and failure to report suspicious activities.
- Expanded trade reporting requirements, aligning with CFTC’s data integrity mandates.
- New expectations for the best execution policies, ensuring that firms have transparent methodologies for executing client trades. Get in touch with us today and let us help you stay aligned with NFA notice I-25-05.
Implications for FCM’s and IB’s
FCM’s and IB’s must take proactive steps to ensure their compliance frameworks align with NFA’s updated expectations:
- Review and Strengthen Supervisory Controls: Implement internal audit procedures to ensure real-time monitoring of trading activities and proper documentation of compliance efforts. Firms should conduct periodic compliance reviews and implement corrective actions as necessary.
- Enhance AML and CDD Programs: Adapt internal policies to meet the latest Financial Crimes Enforcement Network (FinCEN) guidance on suspicious activity reporting. Firms should also update their risk-based approach to onboarding clients and ensure ongoing transaction monitoring.
- Improve Cybersecurity Measures: Firms must ensure adherence to NFA Interpretive Notice 9070, which mandates risk-based cybersecurity policies and incident response protocols. Enhancements should include:
- Multi-factor authentication for sensitive systems.
- Regular penetration testing and vulnerability assessments.
- Incident response simulations to test readiness against cyber threats.
- Prepare for Stricter Trade Reporting Requirements: Increased regulatory scrutiny necessitates automated reporting systems that align with Commodity Futures Trading Commission (CFTC) Rule 1.35 for trade recordkeeping. Firms should implement real-time data validation checks to prevent reporting errors and ensure audit readiness. Read NFA Notice I-25-05 to stay informed and compliant with the latest requirements.