NFA proposes amendments to Financial Requirements Section 15 regarding FDM internal financial controls

Financial Requirements Section 15 currently requires firms to provide NFA with an internal control report prior to acting as an FDM. This report must be prepared by an independent public accountant registered with the Public Company Accounting Oversight Board and must include representations by the accountant that the FDM’s internal financial controls have no material weaknesses. NFA adopted this rule after taking a number of Member Responsibility Actions against FDMs with inadequate internal financial controls.
Additionally, reputable public accounting firms have informed NFA that AICPA auditing standards require accountants to test live transactions before making representations about the adequacy of internal controls, and they cannot do this testing for firms that have not yet begun business. Therefore, the amendments to Section 15 eliminate the specific requirement for an internal control report prior to acting as an FDM and replace it with a more general requirement that the Member must demonstrate that it has adequate internal financial controls. This requirement will continue to put the burden on the Member but will provide more flexibility. Section 15 will continue to authorize NFA to require any FDM to provide an internal control report if NFA believes that the Member’s controls are inadequate:

-If NFA believes that a Member’s internal controls are inadequate at any time, NFA’s Compliance Director may require it to provide to NFA an internal control report that is prepared and certified by an independent public accountant who is registered under Section 102 of the Sarbanes-Oxley Act. –

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