Futures Markets: Strengthening Sales Practice Oversight

Highlights

GAO evaluated the Commodity Futures Trading Commission's (CFTC): (1) oversight of self-regulatory organizations' (SRO) compliance with sales practice requirements; and (2) monitoring of SRO sales practice audits.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Commodity Futures Trading Commission	The Chairman, CFTC, should prepare standardized sales practice RER guidelines that cover all sales practice requirements and include audit steps and documentation requirements.	Closed – Not Implemented CFTC disagrees with the need for standardized guidelines.
Commodity Futures Trading Commission	The Chairman, CFTC, should either resolve disagreements over RER recommendations or use its legal and regulatory authority to require SRO to adopt recommendations for program improvements made as a result of RER.	Closed – Not Implemented CFTC believes that SROs have been responsive to agency recommendations and that no action is necessary.
Commodity Futures Trading Commission	The Chairman, CFTC, should direct SRO to provide CFTC with the information needed to: (1) monitor and assess SRO compliance with sales practice audit requirements; (2) analyze trends of sales practice violations disclosed by industry audits; and (3) review the timely resolution of those violations.	Closed – Not Implemented CFTC disagrees with the need for day-to-day monitoring of SRO compliance.
Commodity Futures Trading Commission	The Chairman, CFTC, should enforce requirements for sales practice audit coverage of all industry futures commission merchants, including coverage of both futures and options sales practices.	Closed – Implemented CFTC intends to clarify its requirements for sales practice audits. CFTC staff reviewed and revised industry audit guidelines to include additional procedures to audit futures and options sales practices and they have agreed to make this a continuous process.
Commodity Futures Trading Commission	The Chairman, CFTC, should improve branch office audit selection criteria to ensure that at least some branch offices of all firms requiring coverage are audited.	Closed – Implemented CFTC has changed its branch office audit selection requirement to be "risk-based" because it might be more cost-effective. This may not be responsive, however, to the original GAO finding that the old requirement allowed many firms with branch offices to have none audited.
Commodity Futures Trading Commission	The Chairman, CFTC, should ensure that SRO sales practice audit guidelines provide coverage of compliance with all sales practice audit requirements.	Closed – Implemented CFTC staff agrees that all SRO should be required to provide audit coverage of compliance with all sales practice requirements, but the final position of CFTC is not clear. CFTC worked with the Joint Audit Committee to ensure coverage of all aspects of sales practices in its audit programs.
Commodity Futures Trading Commission	The Chairman, CFTC, should require the National Futures Association (NFA) to collect and report to CFTC data on commission charges in the industry.	Closed – Not Implemented CFTC believes that the current requirements provide adequate protection to customers.
Commodity Futures Trading Commission	The Chairman, CFTC, should require NFA to adopt a rule requiring fair and reasonable commissions.	Closed – Not Implemented CFTC believes that the current requirements provide adequate protection to customers.

See All 8 Recommendations

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Topics

Financial Markets and Institutions

Auditing standardsBrokerage industryCommodities exchangesFinancial institutionsIndependent regulatory commissionsInvestigations by federal agenciesMonitoringSalesSecurities regulationSelf-regulatory organizations