NFA Issues New Rules On Use of Third Parties to Perform Members’ Regulatory Functions

Earlier this year, the NFA issued Interpretive Notice 9079 (Notice) to help NFA members identify and mitigate problems that can arise when members delegate their regulatory functions to outside service providers (Third-Party Service Providers). The Notice establishes general requirements relating to members’ written supervisory frameworks, which require them to address, at a minimum, the following areas: an initial risk assessment, onboarding due diligence, ongoing monitoring, termination and recordkeeping relating to Third-Party Service Providers. When the Notice becomes effective, those general requirements will become mandatory for all NFA members engaged in activities subject to the supervisory framework referenced in the Notice. In a guest article, David Slovick, partner at Barnes & Thornburg and former senior enforcement official at the CFTC, outlines the general requirements set by the Notice in five substantive aspects of the member/Third-Party Service Provider relationship and provides observations on the implications of those requirements. For coverage of another NFA notice, see “NFA Notice Requires CPOs to Implement Internal Controls Systems” (Feb. 28, 2019).

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