session 5: the nfa audit process moderator: regina thoele, nfa
DESCRIPTION
Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA Panelists: Larry Block, Kenmar Group Joseph Picone, NFA Lennox Compass, NFA. Risk-Based Audit Selection. Concerns noted during a review of the firm’s promotional materials, disclosure documents and/or financial statements - PowerPoint PPT PresentationTRANSCRIPT
![Page 1: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/1.jpg)
Session 5:The NFA Audit Process
Moderator: Regina Thoele, NFAPanelists:
Larry Block, Kenmar GroupJoseph Picone, NFA
Lennox Compass, NFA
![Page 2: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/2.jpg)
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
![Page 3: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/3.jpg)
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
![Page 4: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/4.jpg)
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
![Page 5: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/5.jpg)
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
![Page 6: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/6.jpg)
Areas of Focus
![Page 7: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/7.jpg)
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
![Page 8: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/8.jpg)
CPO Audits: New Areas of Focus
• Valuation Policies- Reasonableness- Conflicts of Interest- Disclosure- Exception Reports- FAS 157 Hierarchy
![Page 9: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/9.jpg)
CPO Audits: New Areas of Focus
• Side Letters/Preferred Redemptions- Compliance with Lock-Up or Gate
Provisions- Disclosure- Just and Equitable Principles
![Page 10: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/10.jpg)
CPO Audits: New Areas of Focus
• Side Pocket Investments- Reasonableness of the Classification- Valuation
• Strategy Promotion- Due Diligence Process- Multi-Advisor- Fund-of-Funds
![Page 11: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/11.jpg)
Common Audit Deficiencies
![Page 12: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/12.jpg)
Registration
• Unlisted principals
• Unregistered Associated Persons
• Failing to update registration records
• Bylaw 1101
![Page 13: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/13.jpg)
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?
![Page 14: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/14.jpg)
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
![Page 15: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/15.jpg)
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
![Page 16: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/16.jpg)
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
![Page 17: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/17.jpg)
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
![Page 18: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/18.jpg)
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
![Page 19: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/19.jpg)
Performance
• No supporting worksheets• Inappropriate use of composite performance
capsules• Details covered during Session 2
![Page 20: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/20.jpg)
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
![Page 21: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/21.jpg)
Disciplinary Actions against CPOs and CTAs
![Page 22: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/22.jpg)
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)
![Page 23: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/23.jpg)
Regulatory Response
• Prohibition on Pools loaning money to the CPO or an affiliate
• Effective October 1, 2009
• Pre-existing Loans
![Page 24: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/24.jpg)
Pending Matters
• CTA Performance– Unreported accounts– Overstated Rates of Return
• Misappropriation of Pool Funds– False information to NFA– Comingling pool funds– Inadequate disclosure
![Page 25: Session 5: The NFA Audit Process Moderator: Regina Thoele, NFA](https://reader035.vdocuments.net/reader035/viewer/2022081504/568151d6550346895dc010ec/html5/thumbnails/25.jpg)
Session 5:The NFA Audit Process
Panelists:Roxanne Bennett, Price Asset Management
Jennifer Sunu, NFAMatt Pendell, NFA