NFA to Impose Fee for Failing to Disclose Disciplinary Matter

The National Futures Association (the “NFA”) issued Notice to Members I-14-11 (the “Notice”) announcing its adoption of new rule amendments that provide for payment of a $1,000 late disclosure fee when an applicant for registration fails to disclose a disciplinary matter or when a registrant fails to promptly update an existing registration to disclose a new disciplinary matter.  The rule will become effective on June 1, 2014, and will apply to registration applications filed after that date and updates to report matters occurring after that date.  The fee will be imposed regardless of whether or not the NFA initiates action that could result in the disqualification of a firm or individual from registration (an “adverse registration action”) based on the failure to disclose or the underlying matter.

The NFA will also adopt a policy of not taking an adverse registration action when the failure to disclose is the result of negligence or carelessness.  This replaces the policy adopted in 2007 under which even a non-intentional failure to disclose a disciplinary matter could nonetheless constitute a willful failure to disclose and therefore subject the firm or individual to an adverse registration action.   Under the new policy, in coordination with imposing the late disclosure fee, the NFA will evaluate the explanation for a non-disclosure to determine whether the surrounding circumstances evidence that the non-disclosure was the result of negligence or carelessness, or whether the non-disclosure was truly willful, in which case the non-disclosure could be the basis for an adverse registration action.

The Notice states that, as part of its supervisory obligations, the sponsor of a principal or associated person is responsible for ensuring that all matters requiring disclosure are in fact disclosed.  As a result, the obligation to pay a late disclosure fee assessed as a result of a principal’s or associated person’s failure to disclose a disciplinary matter is the sponsor’s, not the principal’s or associated person’s, although the Notice states that a sponsor is not prohibited from requiring the principal or associated person to reimburse the sponsor for this expense.  With respect to the disclosure of new matters, a sponsor must ensure that disciplinary matters are reported “promptly.”  The Notice states that the NFA generally considers a matter to have been promptly disclosed if the matter is disclosed to NFA before NFA discovers it and requests that it be disclosed.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

 

Topics:  Amended Regulation, Disclosure Requirements, Fees, NFA

Published In: General Business Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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