US Forex Market Regulation

 RFED – Retail Foreign Exchange Dealer

CFTC

In 1974, the US Congress established the Commodity Futures Trading Commission (CFTC) – the federal regulatory agency with jurisdiction over futures trading.

The same law authorized the creation of a “registered futures association,” thus opening the possibility for the creation of self-regulatory organizations on the national level. That is how NFA was established in 1982, after it won the position while competing with another trade association called the Futures Industry Association (FIA) which was not selected.

In 2000 and 2008, Congress passed a law for certain types of companies requiring them to register with the CFTC and to become members of the NFA.

• companies performing second party functions in transactions on Forex market (dealers)
• fund managers on Forex markets
• trading advisors on Forex markets
• representative brokers on Forex markets
• forex pool operators

In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which gave the CFTC rulemaking authority and oversight over swaps, swap dealers and major swap participants. Subsequently, the CFTC passed regulations requiring swap dealers and major swap participants to register with the CFTC and become Members of NFA.

NFA

The National Futures Association is a self-regulatory organization for the US derivatives industry including exchange-traded futures, OTC foreign exchange market (forex) and swaps.

NFA develops and implements policies and services to ensure the security and integrity of the market and investors protection.

Membership with NFA is mandatory for all companies operating on this market. Currently, NFA has about 4,100 member companies and 57,000 registered specialists.

NFA is a non-commercial, independent, self-regulatory organization which is entirely financed by membership fees.

1.Basic requirements for RFED

2. Key responsibilities of the member:

• Complete an Annual Questionnaire online with NFA;
• Complete the electronic Annual Registration Update;
• Pay the NFA dues on the anniversary date of the firm’s registration;
• Maintaining of up to date contact information of employee responsible for communication with regulator on USA PATRIOT Act 314(a) requests;
• Supervise the operations of any GIBs and/or Branch Offices, including conducting an annual onsite inspection of every GIB and Branch Office;
• Examine sales department work and conduct inner audit report;
• Send the firm’s Privacy Policy to every current customer;
• Contact active customers who are individuals, at least annually, to verify that the information obtained from that customer under NFA Compliance Rule 2-30(c) remains materially accurate, and provide the customer with an opportunity to correct and complete the information. To ensure that the clients have received and familiarized with the risks warnings and other essential documents;
• To conduct the annual review of the disaster recovery plan and make adjustments. Mandatory record-keeping.
• Review the security, capacity, credit and risk-management controls, and records provided by the electronic trading systems and certify that the requirements outlined in NFA Interpretive Notice 2-36(e) have been met. Prepare a certification, signed by a principal who is also a registered AP, and provide a hardcopy to NFA with the submission of the annual audited financial statement.
• For Forex Dealer Members (FDMs) designate one or more principal(s) to serve as Chief Compliance Officer(s) (CCO). Each CCO, as outlined in Compliance Rule 2-36, must certify annually to NFA that the FDM has a process in place to establish, maintain, review, modify and test policies and procedures that are reasonably designed to achieve compliance with the CEA, CFTC Regulations and orders thereunder, and NFA Requirements. Each CCO must also certify that the FDM has compliance processes in place and that the CCO has apprised the FDM’s CEO (or equivalent management personnel) of the FDM’s compliance efforts to date, as well as identified any significant compliance problems and the CCO’s plan to address those problems. Each FDM must file this annual certification with NFA at the time it files it annual certified financial report.
• Provide clients with NFA website link, which contains the information regarding the company, its directors, history of violations, etc. This information should be also sent to all new clients when opening an account.

3.Retail Foreign Exchange Dealer report requirements