Just completed a three hour internal audit by PFG today. Below is a list of required questions that were answered and prepared. I think PFG is resonsible as far as preparing IBs for the upcoming NFA regulation. I am glad they are doing this, it is better for the market and clients. Forex industry is not as regulated and a lot of people are suffering as a result, it is better if all the IBs are audited. I think shortly I will apply for NFA registration and down the road I will apply for CTA registration. I think that’s the way to go as CTA registration is more regulated and it requires a firm to have disclosure documents, etc., basically performance will be verfied and it is more credible and better for investors.
I still need a few things prepared after this audit, although I tried my best to prepare for this meeting but I am still short a few items. All and all, it was a good meeting and a good learning experience. No regret a bit about going through this.
Sam
FX Offices - Audit items….
To expedite the on-site examination of your office, please have the following items and records ready for our review. NOTE: Any items listed below that you maintain electronically on your computer MUST be printed out for our review, Thank you.
1. Agreement / Guarantee Agreement. Agreements with the clearing agents.
2. Articles of Incorporation, Certificate of Limited Partnership and Partnership Agreement or Articles of Organization and Operating Agreement, if applicable. Also, Stock ledger, certificates, or other evidence of ownership in firm Important for registered firms to ensure that all owners that are required to register are registered.
3. Firm’s check ledger, and most recent six months of bank statements This is to confirm that you are in compliance with NFA By-law 1101. This item is not important to you at this time, but we will discuss it further.
4. Copy of firm’s privacy policy
5. Written procedures for: business continuity / disaster recovery plan, Promotional material review, sales practice supervision Required of all futures Introducing Brokers. Good for you to have but not currently required. Will discuss further and furnish you a template.
6. Copy of firm’s anti-money laundering procedures or the signed sheet adopting the procedures of the FCM. Reliance/Sharing of responsibilities letter. Signed statements from each person agreeing to adhere to the AMLP, and signed evidence of annual AML training for each person. Don’t be too concerned here. Oddly enough FX has not been tested on this, but we will discuss the best way to approach this.
7. Letter from FCM authorizing company to accept customer funds (1.57 letter) A must have for registered IBs, but also quite important for FX firms.
8. Copy of previous NFA, internal or other audit reports Doesn’t currently apply.
9. Signed attestation showing completion of the NFA Self-Examination Checklist. Not at all required for FX. I will show you where to get it so that if you like you can get ready to use it.
10. Printed list from NFA’s website of all APs, Principals, and branch offices. Not currently applicable at all and not possible unless you are NFA registered.
11. Written ethics training procedures and evidence that every AP has completed that training. Not currently required, but we will give you a template for this too. Good idea even if not registered to get this training. We will discuss further.
12. Most recent equity run (must be printed for review) Many FX firms don’t even receive an equity run, as such, but we will discuss this further too.
13. List of proprietary accounts for principals and APs Accounts that are open in the name of any of your brokers or immediate family. This is used by the NFA to check “front-running”. This is not important at this time, but you should know about it for when you are registered.
14. A minimum of 100 most recent order tickets, in chronological order.(if you place orders electronically, the printed daily order activity reports for the last two weeks) The NFA requires that you maintain 5 years of your order activity. This can be done electronically or in hard copy form. More discussion here.
15. A sampling of customer account forms - (They must be printed if you maintain them electronically) Please have no less than 4 and up to 12, (for firms with more than 60 customers), of the newest customer account opening documents for review. We review to ensure that all necessary customer information is furnished and that all forms are properly filled out.
16. At least six months of copies of customer checks (with bank deposit slips if you deposit) Not currently required by FX firms, but it is for futures firms and is a good idea to get into doing this as a common procedure.
17. List of AP discretionary accounts / with the commission-to-equity ratio calculated (Also have two monthly statements for each account with AP POA - NOT 3rd party POA)
18. FCM and/or firm’s compliance / policy and procedures manual. Not currently required for FX firms, but we can assist with this also.
19. Customer complaint file (Empty or not, you MUST have a complaint file) Not currently required for FX firms, but good idea to have one.
20. Advertising / Promotional material file (Empty or not, you MUST have an advertising file) Currently required of futures and FX firms. Important that any and all promo and advertising material be approved by a principal of the firm.
21. Written procedures for any branch offices. We will also need a copy of the most recent branch office audit you have conducted. (If you have branches, it is a requirement that you have written branch office procedures and written proof that you have performed annual audits on those branches) Not important right now but we will talk about this for current branches and for preparation of additional branches.
22. Any sales training material and / or telephone scripts Not required to have any phone scripts, but if you have them, we review them for compliance.
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