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Regulatory Perspectives

Blog: From Voice to Email Communications – U.S. Regulators Issue More Fines for Recordkeeping and Supervision Failures

By December 12, 2023No Comments

The U.S. National Futures Association (NFA) has issued two fines both for failing to comply with communication recordkeeping obligations.

An ‘unrealistic’ approach to communications compliance

A U.S. introducing broker and swap dealer was fined $140,000 in October for failing to capture the required oral pre-trade communications under relevant Commodity Futures Trading Commission and NFA regulations. While the firm was aware that its traders communicated with customers over the phone, it was claimed that these conversations were limited to market recaps, general market commentary and current economic events and ‘never consisted of quotes, solicitations, bids, offers or trade instructions’. The firm’s policy was for the traders to conduct any trade-related discussion via chat or electronic messaging to ensure the firm captured and retained those communication records.  The stated opinion of the NFA was that the firm’s expectation that traders would limit their phone discussions with customers to only general market-related matters was ‘unrealistic’. Further the firm was deemed to have utilized a ‘deficient procedure’ by instructing traders to move their discussions to a chat or other written medium once they led to pre-trade negotiations.

Additional recordkeeping failures were found as adequate oversight of the capture and retention of chat messages was lacking.  The firm did not have proper reconciliation controls in place to determine when messages were not properly captured and delivered to its messaging archive. In the opinion of the NFA, the firm should have ‘discovered the missing chat messages sooner’.

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