On December 10, the National Futures Association (NFA) submitted to the Commodity Futures Trading Commission a proposed Interpretive Notice to NFA Compliance Rule 2-9, which would provide commodity pool operators (CPOs) with guidance on designing and implementing an adequate system of internal controls. Specifically, the Interpretive Notice requires CPOs to implement an internal controls system that is designed to protect customer funds and ensure the reliability of the CPO’s books and records and compliance with CFTC and NFA requirements. This includes adopting and implementing written policies and procedures that fully explain the CPO’s internal controls system and maintain records that support the implementation and effectiveness of that system.

In particular, the Interpretive Notice identifies certain key components for all CPO internal controls systems, relating to:

  1. separation of duties (including the separation of custody and financial reporting functions and separation of responsibilities for initiating, approving, recording and reconciling transactions); and
  2. risk assessment (including assessing risks related to pool subscriptions, redemptions and transfers, risk management, valuation and use of fund administrators).

NFA submitted the proposed Interpretive Notice under the “10-day” effectiveness provision, meaning that, absent objection from the CFTC, it will become effective 10 days after its submission.

A copy of the NFA submission is available here.