NFA Implements New Testing Requirements for Swap Associated Persons

Beginning January 31, 2021, all swap associated persons and their supervisors (“APs”) will be required to satisfy the National Futures Association’s (the “NFA”) new swaps proficiency requirements. These requirements will apply to, among others, APs of investment managers registered with the NFA as commodity pool operators (“CPOs”) or commodity trading advisors (“CTAs”) that engage in activities involving swaps.

The swaps proficiency requirements will be satisfied through training modules administered online, and access to the training modules is targeted for January 31, 2020.

NFA’s Swaps Proficiency Requirements

On March 25, 2019, the NFA published amendments to NFA Bylaw 301 and Compliance Rule 2-24 to require all APs of registered futures commission merchants (“FCMs”), introducing brokers (“IBs”), CPOs, CTAs, swap dealers (“SDs”), and major swap participants (“MSPs”) who engage in or supervise activities involving swaps to satisfy new swaps proficiency requirements, which will go into effect on January 1, 2020. In conjunction with those amendments, the NFA also published a notice to its members regarding the new swaps proficiency requirements and released a set of Swaps Proficiency Requirements FAQs to assist NFA members with their compliance obligations.[1]

The swaps proficiency requirements will be administered via the internet through a number of individual modules covering specific topic areas. The NFA has developed a “long-track” and a “short-track.”[2] APs of intermediaries such as CPOs and CTAs, along with their supervisors must satisfy the short track (consisting of four modules rather than the full eight applicable to other registered intermediaries). Only individuals designated as APs (including their supervisors) in the sales and trading areas who negotiate, price and/or execute swaps with counterparties on behalf of a swap dealer and/or manage the swap dealer’s swaps-related risks must satisfy the long track.

The compliance date to satisfy the swaps proficiency requirements is January 31, 2021. The NFA’s rules requiring the swaps proficiency requirements will become effective on January 31, 2020, at which time it is expected that APs will be able to access and take the proficiency requirement online.

Administrator Training Webinar

NFA members with APs required to meet the swap proficiency requirements must designate at least one Swaps Proficiency Requirements Administrator (“SPR Admin”), who must also be an ORS Security Manager, to coordinate enrollment and track progress. The NFA is hosting a webinar on December 10, 2019 to provide information to individuals who plan to be SPR Admins. A registration link can be found here.

Next Steps

• APs of covered CPOs and CTAs will only need to complete the short track requirements, consisting four modules (the long track consists of eight modules), by January 31, 2021.

• There is no grandfathering provision for currently approved APs or for APs with existing exemptions (e.g., a Series 3 Swap Waiver); all individuals seeking to act as swap APs for CPOs or CTAs will be required to satisfy the swaps proficiency requirements.

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[1] See NFA Interpretive Notice 9075 – NFA Bylaw 301 and Compliance Rule 2-24: Proficiency Requirements for Swap APs available here, and Swaps Proficiency Requirements FAQs available here. Notice I-19-09 is available here.

[2] The short track contains four modules: (i) Swaps Products and Applications, (ii) Regulation of the Swaps Market, (iii) Supervision, and (iv) Compliance, Anti-Fraud, and Other Requirements. The long track contains eight modules: (i) Swap Products and Applications, (ii) Regulation of the Swaps Market, (iii) Onboarding, (iv) Transactional Disclosures, (v) Anti-Fraud and Ethical Practices, (vi) Trade Execution/Clearing/Margin, (vii) Risk Management, and (viii) Supervision.