The Division of Market Oversight (DMO) of the US Commodity Futures Trading Commission (CFTC) yesterday issued an advisory regarding the ongoing duty to comply with the timely reporting requirements of CFTC Regulation 17.04(a) in relation to omnibus accounts.
Omnibus accounts are relatively commonplace within the retail forex sector as a means of transmitting deposited funds between client and white label partner, then from white label partner to forex broker in order to fund the client account. The US authorities regard investor protection as a high priority, and have discussed it at Senate level earlier this year.
Flow of Capital Between FCM and Partner
The purpose of such an account is twofold. Firstly, the intention is to facilitate the transaction of individual accounts which are combined in this type of account, allowing for easier management by the futures merchant as clients can make deposits directly to the white label partner of a futures merchant individually, then the futures merchant draws the funding down in one transaction, leaving behind a small amount to enable the white label partner to facilitate withdrawals without having to request them from the futures merchant itself, plus it aids transparency between white label partner and forex company.
Legal Risk Factor Beneath Ripple’s Lawsuit from SECGo to article >>
Secondly, as white label partners handle client records and are often responsible for maintaining compliance records such as KYC and anti money laundering, leaving the forex broker to perform the role of technology partner, such an account helps to protect the identities of individual account holders, allowing the futures merchant to transact on their behalf while all client deposit information is held with the white label partner. In most cases, the futures merchant has no record of these clients on its CRM, as all client records are held by the white label partner
CFTC Reinforces Reporting Duties
With regard to the obligations of market participants which operate in this manner, the CFTC receives, pursuant to Part 17 of its regulations, daily reports on the reportable futures and options positions in all special accounts carried by futures commission merchants, clearing members and foreign brokers. The reports include information pertaining to omnibus accounts.
Regulation 17.04(a) requires a firm with an omnibus account to report information regarding that account to the futures commission merchant, clearing member or foreign broker with whom the account is established in sufficient time to enable such futures commission merchant, clearing member or foreign broker to submit timely daily reports to the CFTC. DMO has issued this advisory to remind affected parties of their continuing obligations under Regulation 17.04(a)
Paul Towne, CEO of NFA regulated independent introducing broker Back Bay Forex spoke to Forex Magnates, providing his view of the requirements: “At first glance I think it is good for brokers (FDMs / FCMs) to have a more transparent approach to the market especially in light of PFG and MF Global. I feel that omnibus accounts are probably overlooked by regulators and can play a large part of institutional clearing.”