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Session 5: The NFA Audit Process Panelists: Roxanne Bennett, Price Asset Management Jennifer Sunu, NFA Matt Pendell, NFA PowerPoint Presentation
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Session 5: The NFA Audit Process Panelists: Roxanne Bennett, Price Asset Management Jennifer Sunu, NFA Matt Pendell, NFA. Risk-Based Audit Selection. Concerns noted during a review of the firm’s promotional materials, disclosure documents and/or financial statements

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Session 5:The NFA Audit ProcessPanelists:Roxanne Bennett, Price Asset ManagementJennifer Sunu, NFAMatt Pendell, NFA

slide2

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
slide3

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 1-800-621-3570
slide4

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
slide5

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
slide7

Areas of Focus

  • Registration of APs, Principals, Other Firms
  • Promotional Material
  • Disclosure and Performance Reporting
  • Account Opening
  • Trading
  • Supervision
  • Handling of Pool Funds
  • Financial Reporting
slide8

CPO Audits: New Areas of Focus

  • FAS 157 Hierarchy
  • Valuation Policies
      • - Reasonableness
      • - Conflicts of Interest
      • - Disclosure
      • - Exception Reports
slide9

CPO Audits: New Areas of Focus

  • Side Letters/Preferred Redemptions
      • - Compliance with Lock-Up or Gate Provisions
      • - Disclosure
      • - Just and Equitable Principles
slide10

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
Registration
  • Unlisted principals
  • Unregistered Associated Persons
  • Failing to update registration records
  • Bylaw 1101
bylaw 1101 due diligence
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
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
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
Bunched Orders
  • CTA must conduct a quarterly review of accounts to ensure that bunched orders are allocated in a non-preferential manner
slide17

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
slide18

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
slide19

Performance

  • No supporting worksheets
  • Inappropriate use of composite performance capsules
  • Details covered during Session 2
slide20

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
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Session 5:The NFA Audit ProcessPanelists:Roxanne Bennett, Price Asset ManagementJennifer Sunu, NFAMatt Pendell, NFA