1. SD and MSP Member Regulatory Conference May 7, 2015

2. 2  Introduction to NFA Senior Staff and Department Overview  Examinations – Observations from SD and MSP Examinations  Continuous Monitoring Program Today’s Topics

3. 3  Investigations and Business Conduct Committee  Update on Section 4s Policy and Procedure Review  New SD and MSP WinJammer Filings  Regulatory Coordination Update Today’s Topics

4. May 7, 2015 OTC DERIVATIVES OVERSIGHT PROGRAM & TEAM STRUCTURE

5. 5 OTC Derivatives Oversight Program & Team Structure Documentation Compliance Firm 4s policy and procedure review Swaps rule reviews Internal and external notices Departmental Planning Project Management Staff Management Firm Examinations Routine examinations Targeted review Investigations Continuous Monitoring Program Member visits and updates Risk Management Risk, capital, and margin analysis Examination support

6. May 7, 2015 SD AND MSP EXAMINATION OBSERVATIONS Discussion Topics

7. 7  Training  Compliance Monitoring  Issue Tracking and Remediation  Practices Observed  Examination Issues Identified SD and MSP Examination Topics

8. 8 Firm TypeNumber of Firms G158 Non-Bank Financial Services7 Non-G15 Banks5 RFED2 Energy1 Total23 Firms Observed

9. May 7, 2015 SD AND MSP EXAMINATION OBSERVATIONS Training

10. 10  At a minimum – Sales and Trading Personnel  Certain firms trained all employees impacted by the regulations – including Risk, Operations and Technology Who is Trained

11. 11  Some firms are still transitioning training from an “ad hoc” or “as needed basis” into more routine training programs.  More common – annual training that includes topics relevant to DF and other DF topics covered on a cycle e.g. every two or three years  Annual training on DF to new employees. Training provided on a cycle to other employees. Training Frequency

12.  In-person  Town hall, classroom  Manual or electronic tracking  Electronic (6 firms)  Webinar – in-house or third party  Testing – minimum score required  Combination of In-person and Electronic Training Methods 12

13.  Training program in development, so training not yet provided  Ad-hoc training but ongoing training program in development  Limited subject matter coverage  Not all relevant sales and trading personnel included in training  Insufficient oversight of training provided to sales and trading personnel outside of US  Tracking and assessment of attendance not effective Common Findings on Training 13

14. May 7, 2015 SD AND MSP EXAMINATION OBSERVATIONS Compliance Monitoring Programs

15.  Monthly/Quarterly reports including:  Upcoming Compliance Dates  Compliance testing and surveillance results  Non-compliance Issues  Training status  Audit reports and issue summaries  Changes to Risk Management Program  Key metrics - confirmations, SDR reporting, reconciliation breaks CCO Monitoring Reports 15

16. 16  Many firms use automated reports in their monitoring program  More Common:  External Business Conduct Standards – e.g. ECP status, missing LEIs  SDR Reporting – late trade reporting  Trades Booked Late or Cancel and Corrected  Aged Confirmations  Less common:  Aged Portfolio reconciliation breaks and disputes  MAT trades  Swap Trading Relationship Documentation  Mandatory Clearing Automated Reports

17.  Most firms use risk assessments to identify high risk areas for testing  Several firms have dedicated Compliance testing teams  More common areas:  External Business Conduct Standards, e.g. ECP status, pre-trade disclosures, daily marks to counterparties  Recordkeeping  Swap Trading Relationship Documentation  SDR Reporting Sample Testing 17

18.  Less common areas:  Confirmations  Portfolio Reconciliation Sample Testing, cont’d. 18

19.  More commonly observed:  Compliance Committee  Risk Committee  Operational Committee  Less commonly observed:  Dodd-Frank Committee  New Products Committee  Conflicts Committee  Audit Committee CCO Committee Participation 19

20.  CCOs involved through one or more of the following:  Risk Committees and Senior Management BU meetings  Forum for discussion of risk reports including RER  Review of Key Risk Reports  Operational Risk Dashboards  Risk Management Committee Reports  Annual Testing of Risk Management Program  Annual test will meet regulatory requirement  Review of results CCO Involvement in Risk Management Program Compliance 20

21.  Insufficient or gaps in surveillance or testing  Insufficient documentation to support work  CCO not sufficiently involved in the Risk Management Program to become aware of non-compliance issues Common Compliance Monitoring Findings 21

22. May 7, 2015 SD AND MSP EXAMINATION OBSERVATIONS Issue Tracking and Remediation

23. 23  How CCOs are tracking non-compliance issues and remediation  Regular meetings with direct reports  Member of key committees  Review Reports  Summary reports and more detailed reports Non-Compliance Issue Tracking and Remediation

24. 24  Central firm-wide issue tracking – (8 firms)  Multiple tracking systems – (8 firms)  Compliance  Internal Audit  Operational Risk  Automatic alerts of updates to issue log (2 firms) Issue Tracking

25.  Timely escalation and documentation  Clear process for determining materiality and recording issues  Central database showing remediation status  Process to alert key personnel when remediation is not on target Common Themes of Effective Tracking 25

26. 26  Various approaches observed:  Compliance retesting  Internal audit retesting  Approval by “owner” area of firm  Committee review remediation of significant issues Retesting and Review of Remediation

27.  Gaps in Compliance tracking  No or inadequate documentation of issues or remediation  Responsibility for retesting not clearly defined  Inability to identify SD related issues Common Issue Tracking and Remediation Findings 27

28. May 7, 2015 SD AND MSP EXAMINATION OBSERVATIONS Annual Report – Sub-Certification

29. 29  Majority of CCOs require key senior personnel to sub-certify information provided in the annual report  Some firms use multi-level sub-certifications  More Common:  Assess effectiveness of policies and procedures  Identify material non-compliance issues  Identify material changes to policies and procedures  Less Common:  Identify resource deficiencies  Identify areas that need improvement CCO Annual Report Sub-Certifications

30. Better Practices Observed  Personnel responsible for activities covered by the rule perform testing, which sub-certifiers review  Sub-certifier required to input responses in addition to attestation  Identify changes to policies and procedures  Identify material non-compliance issues  Semi-annual sub-certifications CCO Annual Report Sub-Certifications 30

31. May 7, 2015 UPCOMING EXAMINATION PLAN

32.  Focus on certain aspects of the Risk Management Program  Covers US Swap Dealers  Scope varies depending on firm  On-site exams planned to start fall 2015 Upcoming Examination Plan 32

33. May 7, 2015 CONTINUOUS MONITORING PROGRAM

34. 34  Keep NFA informed of significant developments at member firms and in the industry – e.g. changes in business activities, key personnel  Assist NFA in executing a risk-based approach to examinations Objectives of Monitoring

35. 35  Periodic meetings with Chief Compliance Officers and other firm personnel as necessary  Review certain SD and MSP reports  Assess specific events relating to SDs and MSPs Monitoring Activities

36. 36  Introductory meetings  Meet with small number of member firms each quarter  Complete all introductory meetings by spring 2016  Develop plan for frequency of subsequent meetings (i.e. post introductory meetings) Monitoring Next Steps

37. May 7, 2015 INVESTIGATIONS AND BUSINESS CONDUCT COMMITTEE

38. Section Title 38  SD and MSP Members are encouraged to notify NFA and CFTC of material non-compliance matters when they occur.  NFA makes a preliminary assessment of each self-reported incident in order to determine the appropriate course of action.  NFA coordinates its due diligence with the CFTC. Self-reporting to NFA

39. Self-reported Issue Metrics  Majority of issues  Telephone Recording  Swap Data Repository Reporting  Most issues involve:  Technology component  Recordkeeping component 39

40. Section Title 40  NFA would not expect a self-reporting of every non-compliance incident at a firm. Only material non-compliance incidents need to be reported.  Firms should apply the same materiality standards used for reporting material non-compliance incidents in the CCO Annual Report. Materiality in Self-reporting

41. 41 NFA Disciplinary Process Overview Examiners Enforcement Attorneys Business Conduct Committee (BCC) Hearing Committee Identify apparent violations of NFA rules from regular examinations or investigations Work with examiners to review apparent rule violations and determine whether the matter should be presented to NFA’s Business Conduct Committee for formal action Reviews information presented by NFA staff and determines whether to issue a Complaint Makes final determination of whether rule violations occurred and appropriate penalty

42. 42 Identifying apparent rule violations:  NFA’s Disciplinary cases are limited to violations of NFA’s rules  Potential violations are identified in examinations or investigations  Examiners work with NFA enforcement attorney to reach initial conclusion on whether violation has occurred  Senior staff determine whether to bring matter to BCC NFA Disciplinary Process

43. BCC Review:  Background on BCC  BCC reviews a report prepared by staff on the apparent rule violation(s)  BCC authorizes a formal Complaint if it believes the evidence provided supports a probable cause determination that an NFA rule(s) has been violated  Complaint identifies the alleged rule violations and the activity that constitutes the violations NFA Disciplinary Process 43

44. Post Complaint:  Background on NFA’s Hearing Committee  Prehearing Conference  Settlements  Hearings  Decision  Penalties  Appeals Process NFA Disciplinary Process 44

45. Emergency Disciplinary Action:  NFA also has authority to take an emergency action known as a Member Responsibility Action (MRA)  NFA’s Executive Committee will issue an MRA at the recommendation of staff when it believes the action is necessary to protect the markets, customers or other Members  MRA may summarily suspend a Member, impose restrictions on the Member’s operations or impose other remedial sanctions without a hearing NFA Disciplinary Process 45

46. 46 Emergency Disciplinary Action:  Member respondent is entitled to a prompt hearing on the MRA  3 person Hearing Panel presides over the hearing  Issues a decision that may affirm, modify or lift the MRA  Member respondent may appeal an adverse decision to the CFTC NFA Disciplinary Process

47. May 7, 2015 UPDATE ON SECTION 4 S POLICY AND PROCEDURE REVIEW

48. 48  Facial Review – Complete for all provisionally registered entities  Detailed Review  NFA policy and procedure review and coordination with CFTC  Feedback letters on specific topics  Corrective Action follow-up  Acknowledgement Letters Section 4s Policy and Procedure Review Process

49. 49 Section 4s Policy and Procedure Review Status CompleteWork in progress - StatusFuture Feedback and Correction Topics CCO – Acknowledgement letters sent Business Continuity and Disaster Recovery – Corrective action review/acknowledgement letters Conflicts of Interest – Corrective action review Risk Management Program – Feedback letters sent – awaiting Member response  KYC  Disclosures  Market Practice Special Entities  Documentation  Duties (misc & general)  Processing & Clearing  Recordkeeping  Reporting  Segregation

50. May 7, 2015 NEW SD AND MSP W IN J AMMER ™ FILINGS

51. 51  Rule 2-49 Amendment  Requires SDs and MSPs to submit documents, notices, and reports to NFA and CFTC in manner prescribed by NFA.  Requirements to submit reports via WinJammer  Periodic Risk Exposure Reports  Chief Compliance Officer Annual Reports  Business Continuity and Disaster Recovery Contact Information  Submit NFA Annual SD/MSP Questionnaire via Annual Questionnaire System New SD and MSP WinJammer™ Filings

52. Information on Filing Requirements Select Swaps Information at the top of NFA’s homepage. Choose ‘Filing Requirements for Swap Dealers and Major Swap Participants’ from the list of options available in left hand paneFiling Requirements for Swap Dealers and Major Swap Participants Section Title 52

53. Resources Available At bottom of Filing Requirements for Swap Dealers and Major Swap Participants there is information on applicable rules, notices, CFTC press releases, and WinJammer.Filing Requirements for Swap Dealers and Major Swap Participants Section Title 53

54. May 7, 2015 REGULATORY COORDINATION DISCUSSION

55. May 7, 2015 QUESTION & ANSWER SESSION