FCM audit – what you need to know

Recent Developments

On March 28, 2014, the CFTC’s Division of Swap Dealer and Intermediary Oversight (DSIO) issued interpretive guidance on this issue (release PR6897-14). The interpretation states that “it is DSIO’s view that a public accountant of an FCM will comply with the Commission’s Regulation 1.16 auditor independence requirements if such public accountant complies with the SEC and PCAOB audit independence requirements applicable to broker-dealers.”


In November 2013, the CFTC approved a final rule on enhancing customer protections, which, in part, will require audits of futures commission merchants (FCMs) to be performed in accordance with PCAOB standards by a PCAOB-registered firm that “must have undergone a PCAOB inspection”. The compliance date is June 1, 2014, which coincides with the SEC’s recent requirement for broker-dealer audits to be conducted under the PCAOB standards for fiscal years ending on or after June 1, 2014. The CFTC is deferring the “inspection” requirement (that is, in order to qualify to conduct an audit of an FCM, a public accountant must have undergone an inspection by the PCAOB) until December 31, 2015.

The CFTC lists the independence of the certified public accountant as one of the factors for the governing body of the FCM to consider when assessing the qualification of an auditor engaged to perform an FCM audit. The CFTC, presumably, refers to the PCAOB independence standards, which would include all independence requirements set by both the PCAOB and SEC. Therefore, unless the CFTC specifically clarifies which PCAOB and SEC independence standards should apply to FCM audit engagements, FCM auditors should acquaint themselves and start following PCAOB and SEC independence standards for current audits. This requirement differs from the requirements for broker-dealers under SEC Rule 17a-5.

Auditors of broker-dealers also have to comply with PCAOB standards for fiscal years ending on or after June 1, 2014. Recent technical amendments to the PCAOB rules require that broker-dealer auditors follow certain of the PCAOB's ethics and auditor independence rules (Rules 3500T, 3501, 3502, 3520, 3521, 3522 and 3526) but not others (Rules 3523, 3524, and 3525)1. Auditors of broker-dealers will continue to be required to comply with SEC independence requirements. SEC Rule 17a-5 specifically states that auditors of broker dealers must be independent in accordance with § 210.2-01. The SEC broker-dealer rule specifically noted that auditors of non-issuer broker-dealers are not subject to

  • the partner rotation requirements,
  • the compensation requirements,
  • the audit committee pre-approval requirements,
  • the cooling-off period requirements for employment.
Absent CFTC regulatory relief regarding which PCAOB and SEC independence rules apply to auditors of FCMs, auditors of FCMs will find themselves subject to all PCAOB and all SEC independence requirements. Stay tuned for further developments.

1. Rules 3523, 3524, and 3525 will continue to apply to services provided to issuer audit clients.