[Federal Register Volume 67, Number 92 (Monday, May 13, 2002)]
[Notices]
[Pages 32072-32073]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-11889]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-45887; File No. SR-NFA-2002-03]


Self-Regulatory Organizations; Notice of Filing of Proposed Rule 
Change by National Futures Association Regarding Futures Commission 
Merchants and Introducing Brokers Anti-Money Laundering Program

May 7, 2002.
    Pursuant to Section 19(b)(7) of the Securities Exchange Act of 1934 
(``Act''),\1\ and Rule 19b-7 under the Act,\2\ notice is hereby given 
that on April 25, 2002, National Futures Association (``NFA'') filed 
with the Securities and Exchange Commission (``SEC'' or ``Commission'') 
the proposed rule changes described in Items I, II, and III below, 
which Items have been prepared by NFA. The Commission is publishing 
this notice to solicit comments on the proposed rule changes from 
interested persons.
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    \1\ 15 U.S.C. 78s(b)(7).
    \2\ 17 CFR 240.19b-7.
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    On April 22, 2002, NFA submitted the proposed rule change to the 
Commodities Futures Trading Commission (``CFTC'') for approval. The 
CFTC approved the proposed rule change on April 23, 2002.\3\
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    \3\ Letter from Catherine D. Dixon, Assistant Secretary of the 
Commission, CFTC, to Thomas W. Sexton, Vice President and General 
Counsel, NFA, dated April 23, 2002.
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I. Self-Regulatory Organization's Description of the Proposed Rule 
Change

    Section 15A(k) of the Exchange Act \4\ makes NFA a national 
securities association for the limited purpose of regulating the 
activities of members who are registered as brokers or dealers in 
security futures products under Section 15(b)(11) of the Exchange 
Act.\5\ NFA Compliance Rule 2-9 and the Interpretive Notice Regarding 
Futures Commission Merchants (``FCM'') and Introducing Brokers (``IB'') 
Anti-Money Laundering Program (``Notice'') apply to all Members who 
open and accept orders for futures accounts, regardless of the 
underlying product and, therefore, will apply to Members registered 
under Section 15(b)(11) with regard to their security futures 
activities.
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    \4\ 15 U.S.C. 78o-3(k)
    \5\ 15 U.S.C. 78o(b)(11).
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    The proposed rule change responds to the CFTC's request that NFA 
adopt minimum standards for anti-money laundering programs applicable 
to the futures industry. Section 352 of the International Money 
Laundering Abatement and Anti-Terrorist Financing Act of 2001 (``Title 
III'') requires financial institutions, as defined under the Bank 
Secrecy Act (``BSA''), to implement an anti-money laundering program 
which, at a minimum, must include internal policies, procedures and 
controls to deter, detect and report suspicious activity; a designated 
compliance officer to oversee anti-money laundering surveillance; an 
ongoing training program for employees; and an independent audit 
function to test the compliance of the program. NFA Compliance Rule 2-9 
and the Interpretive Notice Regarding FCM and IB Anti-Money Laundering 
Program implement this requirement.

II. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

    NFA has prepared statements concerning the purpose of, and basis 
for, the proposed rule change, burdens on competition, and comments 
received from members, participants, and others. The text of these 
statements may be examined at the places specified in Item IV below. 
These statements are set forth in Sections A, B, and C below. The text 
of the proposed rule change is available for inspection at the Office 
of the Secretary, the NFA, the Commission's Public Reference Room, and 
on the Commission's website (http://www.sec.gov).

A. Self-Regulatory Organization's Statement of the Purpose of, and 
Statutory Basis for, the Proposed Rule Change

1. Purpose
    As noted above, the proposed rule change responds to the CFTC's 
request that NFA adopt minimum standards for anti-money laundering 
programs applicable to the futures industry. Section 352 of the 
International Money Laundering Abatement and Anti-Terrorist Financing 
Act of 2001 (``Title III'') requires financial institutions, as defined 
under the Bank Secrecy Act (``BSA''), to implement an anti-money 
laundering program which, at a minimum, must include internal policies, 
procedures and controls to deter, detect and report suspicious 
activity; a designated compliance officer to oversee anti-money 
laundering surveillance; an ongoing training program for employees; and 
an independent audit function to test the compliance of the program.
    Although the BSA explicitly defines ``financial institutions'' to 
include FCMs, Commodity Pool Operators (``CPOs'') and Commodity Trading 
Advisors (``CTAs'') (but not IBs), the U.S. Department of the Treasury 
(``Treasury'') has requested that NFA's anti-money laundering program 
requirements apply to IBs. Treasury notes that it intends to clarify 
that IBs are within the BSA's definition of ``financial institutions'' 
in the near future. In Treasury's view, this amendment is necessary so 
that Title III's requirements apply to FCMs and IBs in a manner 
comparable to clearing and introducing broker-dealers in the securities 
industry.
    The proposed Notice makes clear that FCMs and IBs must adopt an 
anti-money laundering compliance program. The Notice allows FCMs and 
IBs to allocate their responsibilities by written agreement, but 
indicates that both parties must have a reasonable basis for believing 
that the other party is performing their required functions. The Notice 
also highlights that the Secretary of the Treasury has stated that 
allocating these responsibilities does not relieve either the FCM or 
the IB of its independent obligation to comply with the anti-money 
laundering requirements.
    The proposed Notice is divided into four main areas that track the 
requirements of Section 352. The first section discusses the types of 
policies, procedures, and internal controls that FCMs and IBs should 
include in their anti-money laundering program. Specifically, the 
Notice discusses procedures for obtaining and verifying the true 
identity of the owner/beneficial owner of an account. The Notice also 
describes various relationships between carrying FCMs and IBs and other 
entities and discusses the FCM's and IB's responsibilities when other 
entities are involved. In particular, the Notice states that when an 
FCM or IB is doing business with a CPO, the FCM or IB will be required 
to conduct a risk-based analysis of the money laundering risks posed by 
the pool and, in most instances, this analysis will not require the FCM 
or IB to conduct due diligence on the underlying participants or 
beneficiaries. With regard to the treatment of accounts introduced by 
regulated foreign intermediaries, the proposed Notice requires an FCM 
to make a risk-based determination as to whether it can rely on the 
foreign

[[Page 32073]]

intermediary's due diligence with respect to its customers. The Notice 
also identifies certain factors to consider including whether the 
intermediary, is located in a FATF member jurisdiction, the FCM's 
historical experience with the foreign intermediary and the 
intermediary's reputation in the investment business.
    The first section of the Notice also describes procedures for 
detecting and reporting suspicious activity, hiring qualified staff in 
areas susceptible to money laundering, and record keeping requirements. 
The second section of the Notice discusses the requirement that the 
firm designate an individual or individuals to oversee the surveillance 
program. This section also highlights the main responsibilities of this 
individual. The third section discusses the components of an employee 
training program. Finally, the last section discusses the independent 
audit review function and the ways a firm can satisfy this requirement.
2. Statutory Basis
    The rule change is authorized by, and consistent with, Section 
15A(k) of the Exchange Act.\6\
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    \6\ 15 U.S.C. 78o-3(k).
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B. Self-Regulatory Organization's Statement on Burden on Competition

    The rule change will not impose any burden on competition that is 
not necessary or appropriate in furtherance of the purposes of the 
Exchange Act and the CEA. Any burdens imposed are necessary and 
appropriate in order to protect customers.

C. Self-Regulatory Organization's Statement of Comments on the Proposed 
Rule Change Received From Members, Participants, or Others

    NFA worked with industry representatives in developing the rule 
changes. NFA did not, however, publish the rule changes to the 
membership for comment. NFA did not receive comment letters concerning 
the rule changes.

III. Date of Effectiveness of the Proposed Rule Change and Timing 
for Commission Action

    By law, financial institutions must be in compliance with the 
requirements of Section 352 of Title III on or before April 24, 2002.
    The proposed rule change became effective on April 23, 2002. Within 
60 days of the date of effectiveness of the proposed rule change, the 
Commission, after consultation with the CFTC, may summarily abrogate 
the proposed rule change and require that the proposed rule change be 
refiled in accordance with the provisions of Section 19(b)(1) of the 
Act.\7\
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    \7\ 15 U.S.C. 78s(b)(1).
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IV. Solicitation of Comments

    Interested persons are invited to submit written data, views and 
arguments concerning the foregoing, including whether the proposed rule 
change conflicts with the Act. Persons making written submissions 
should file nine copies of the submission with the Secretary, 
Securities and Exchange Commission, 450 Fifth Street, NW, Washington, 
DC 20549-0609. Comments also may be submitted electronically to the 
following e-mail address: [email protected]. Copies of the 
submission, all subsequent amendments, all written statements with 
respect to the proposed rule change that are filed with the Commission, 
and all written communications relating to the proposed rule change 
between the Commission and any person, other than those that may be 
withheld from the public in accordance with the provisions of 5 U.S.C. 
552, will be available for inspection and copying in the Commission's 
Public Reference Room. Copies of these filings also will be available 
for inspection and copying at the principal office of NFA. 
Electronically submitted comments will be posted on the Commission's 
website (http://www.sec.gov). All submissions should refer to File No. 
SR-NFA-2002-03 and should be submitted by June 3, 2002.

    For the Commission, by the Division of Market Regulation, 
pursuant to delegated authority.\8\
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    \8\ 17 CFR 200.30-3(a)(75).
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Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 02-11889 Filed 5-10-02; 8:45 am]
BILLING CODE 8010-01-P