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FIA Issues Statement Regarding Peregrine Financial Group

Date 11/07/2012

The Futures Industry Association issued the following statement today in response to the discovery of accounting irregularities at Peregrine Financial Group and a large shortfall of customer funds.

The futures industry is outraged at what appears to be an extensive fraud carried out on futures customers of this firm and is appalled that customers may be victims of this deceit. Any violations of the law should be vigorously pursued and prosecuted.

Earlier this year, FIA formed a special committee, the Futures Markets Financial Integrity Task Force, to develop and recommend specific measures that could be implemented in the near term through both industry best practice and regulatory change to address issues arising from the segregation of customer funds. In February, FIA published these recommendations, which advocated 1) enhanced disclosure regarding customer funds protections, 2) enhanced reporting with regard to customer funds, 3) enhanced internal controls, and 4) additional safeguards around foreign futures (see background information below). The industry is currently implementing many of these critically important reforms.

While an individual bent on fraud can confound even the most sophisticated compliance framework, measures to mitigate the risk of fraud must continue to be vigorously pursued. The more the industry can do to educate customers, the better armed they will be to make informed decisions when choosing a futures commission merchant. It will be a combination of robust internal controls, enhanced audit procedures and oversight, and vigorous enforcement that gives us all the best chance at combating this type of fraud. The FIA is wholly committed to helping in this effort.

Background Information

The FIA in February released two documents to address issues related to the bankruptcy of MF Global.

The Initial Recommendations for Customer Funds Protection is designed to enhance financial recordkeeping and reporting requirements, provide greater transparency to regulators regarding the investment of customer funds, and establish industry-wide internal control standards for the customer funds segregation process.

The Protection of Customer Funds: Frequently Asked Questions contains 30 questions and answers addressing the basics of segregation, collateral management and investments, capital requirements and other issues for FCMs and joint FCM/broker-dealers, and clearinghouse guarantee funds.

The FIA is the primary industry association for centrally cleared futures and swaps. Its membership includes the world’s largest derivatives clearing firms as well as exchanges and clearinghouses from more than 20 countries. Although FIA has no regulatory authority, we seek to promote best practices and standardization in the cleared derivatives markets, provide policymakers with an informed perspective on the derivatives markets, and advocate for the interests of its members, its markets and its customers. The FIA strives to protect open and competitive markets, protect the public interest through adherence to high standards of professional conduct and financial integrity, and promote public trust and confidence in the cleared markets. For more information, please contact: Will Acworth (wacworth@futuresindustry.org) or Joanne Morrison (jmorrison@futuresindustry.org) at (202) 466-5460 or visit our website at www.futuresindustry.org.