NFA’s proposal will become effective 10 days after receipt by the Commodity Futures Trading Commission (“CFTC”) unless the agency determines it will review the proposal prior to approval. In this Legal Update, we provide background on NFA’s current approach to work-from-home arrangements and describe the proposal.
Futures commission merchants, introducing brokers, commodity pool operators, commodity trading advisors and retail foreign exchange dealers must register with the CFTC and become member firms of NFA unless an exemption from registration applies.2 Natural persons employed by such firms in certain capacities must register with the CFTC (through NFA) as associated persons (i.e., those who solicit commodity interest customers or orders or supervise such persons).3
NFA also requires member firms to notify it of the location at which each associated person performs the activities that require the person to be registered.4 These locations are referred to as branch offices and must be supervised by a branch office manager.
On March 13, 2020, NFA released Notice I-20-12 in response to the COVID-19 pandemic.5 The notice temporarily suspended the requirements that members (i) register the work locations of associated persons as branch offices and (ii) staff branch offices with an on-site designated branch manager. This was done to allow associated persons and other firm employees to work from home or other remote locations during the pandemic. It was conditioned on the firm implementing and documenting alternative (i) supervisory methods to adequately supervise the activities of the associated persons and (ii) ways to meet its recordkeeping requirements. The notice indicated that the relief is available only while a firm is operating under contingencies pursuant to its business continuity plan (e.g., during a pandemic).
The proposal would make permanent the relief in Notice I-20-12.6 Specifically, it would exclude from the definition of a branch office a location that an associated person (or a group of associated persons from the same household) lives, rents or leases. This would allow an associated person to work from home or a flex workspace because the member firm would no longer be required to list the location as a branch office or staff it with an on-site branch manager.
Use of the exclusion would be conditioned on the non-branch location (i) not being held out to the public as an office of the member firm, (ii) not being used to meet in-person with customers and (iii) not being used to physically handle customer funds. These conditions appear to be designed to mitigate the risk that a location that is not physically supervised by the member firm is used to confuse, deceive or harm a customer. Further, the member firm would need to ensure that any required records created at the non-branch location are accessible to the CFTC and NFA at the firm’s main office or a branch office.
The proposal would allow for permanent work-from-home arrangements for associated persons and appears to be based on the success that NFA and the industry have had with remote work during the pandemic. It also would permit other types of remote work arrangements, such as flex workspaces. Assuming the proposal is finalized without further action by the CFTC, member firms should consider reviewing their compliance programs and updating their written supervisory procedures to ensure that they reflect the conditions of the permanent exclusion.
Further, while the proposal would alleviate the primary regulatory restraint on remote work, it would not affect other legal regimes and may not align with the strategic plans of member firms. Therefore, member firms should carefully consider the other consequences of remote work arrangements (e.g., employment and tax law concerns, securities law issues for dual-hatted employees, and training and human capital issues) when taking advantage of the relief in the proposal.
1 NFA, Proposed Amendment to Interp. Notice 9002 (Aug. 23, 2021), https://www.nfa.futures.org/news/PDF/CFTC/082321-Proposed-Amendments-NFA-Interpretive-Notice-Registration-Requirements-Branch-Offices.pdf