As members of the NFA, registered swap dealers (SDs) and major swap participants (MSPs) are subject to examination and investigation by the NFA – an involved process that can lead to disciplinary action. In addition to compliance with NFA and CFTC regulations, the NFA examines SDs and MSPs for compliance with multiple substantive regulatory requirements (Section 4s Implementing Regulations). While most hedge fund managers likely do not themselves qualify as SDs or MSPs, counterparties with which they do business may be so registered, and non-compliance issues with, or disciplinary action against, those counterparties may affect the managers’ hedge funds. During the recent NFA Member Regulatory Conference held in New York City, members of the NFA and other industry experts discussed best practices in compliance training, testing and monitoring and SD and MSP reporting requirements. This article, the second in a two-part series, discusses upcoming examination focus areas; NFA investigations; the Section 4s Implementing Regulation review process; and filings required from SDs and MSPs. The first article
highlighted the main points regarding the NFA’s examination process and NFA expectations concerning member training programs, compliance monitoring and testing. For more on SDs and MSPs, see “Katten Partner Raymond Mouhadeb Discusses the Purpose, Applicability and Implications of the August 2012 ISDA Dodd-Frank Protocol for Hedge Fund Managers, Focusing on Whether Hedge Funds Should Adhere to the Protocol
,” Hedge Fund Law Report, Vol. 6, No. 4 (Jan. 24, 2013).