INTL FCStone 2014 Annual Report Download - page 33

INTL FCSTONE INC.  Form 10K 17
PART I
ITEM 1A Risk Factors
or those of our third party providers, may fail or operate slowly,
causing one or more of the following:
•unanticipated disruptions in service to our clients;
•slower response times;
•delays in our clients’ trade execution;
•failed settlement of trades;
•decreased client satisfaction with our services;
•
incomplete, untimely or inaccurate accounting, recording,
reporting or processing of trades;
•financial losses;
•litigation or other client claims; and
•regulatory sanctions.
e occurrence of degradation or failure of the communications
and computer systems on which we rely may lead to financial losses,
litigation or arbitration claims filed by or on behalf of our customers
and regulatory investigations and sanctions, including by the CFTC,
which require that our trade execution and communications systems
be able to handle anticipated present and future peak trading volumes.
Any such degradation or failure could also have a negative effect
on our reputation, which in turn could cause us to lose existing
customers to our competitors or make it more difficult for us to
attract new customers in the future. Further, any financial loss
that we suffer as a result of such degradations or failures could be
magnified by price movements of contracts involved in transactions
impacted by the degradation or failure, and we may be unable to
take corrective action to mitigate any losses we suffer.
We are subject to extensive government
regulation.
e securities and commodities futures industries are subject
to extensive regulation under federal, state and foreign laws.
In addition, the SEC, the CFTC, FINRA, the NFA, the CME
Group and other self-regulatory organizations, commonly
referred to as SROs, state securities commissions, and foreign
securities regulators require compliance with their respective
rules and regulations. ese regulatory bodies are responsible for
safeguarding the integrity of the financial markets and protecting
the interests of participants in those markets.
As participants in various financial markets, we may be subject to
regulation concerning certain aspects of our business, including:
•trade practices;
•the way we communicate with, and disclose risks to clients;
•financial and reporting requirements and practices;
•
client identification and anti-money laundering requirements;
•capital structure;
•record retention; and
•the conduct of our directors, officers and employees.
Failure to comply with any of these laws, rules or regulations
could result in adverse consequences. We and certain of our
officers and employees have, in the past, been subject to claims
arising from acts that regulators asserted were in contravention
of these laws, rules and regulations. ese claims resulted in the
payment of fines and settlements. In this regard, in May 2013,
we settled claims made by the CFTC, that our subsidiary, FCStone
LLC, failed to diligently supervise its officers’ and employees’
activities relating to risks associated with its customers’ accounts.
e claims of the CFTC arose out of transactions by former
FCStone customers that took place between January 1, 2008
and March 1, 2009. In the settlement, FCStone agreed to cease
and desist from violating certain regulations of the CFTC, to pay
$1.5 million to the CFTC, and appoint an independent third
party reviewer to review and evaluate FCStone’s existing policies
and procedures relating to certain risks, to ensure that we had
made sufficient modifications to our risk controls since 2008.
We paid the fine of $1.5 million in fiscal 2013. An independent
third party reviewer was appointed, and the mandated review
has been completed.
It is possible that we and our officers and other employees will
be subject to similar claims in the future. An adverse ruling
against us or our officers and other employees could result in
our or our officers and other employees being required to pay a
substantial fine or settlement and could result in a suspension
or revocation of required registrations or memberships. Such
sanctions could have a material adverse effect on our business,
financial condition and operating results.
e regulatory environment in which we operate is subject
to change. On November 14, 2013, the CFTC finalized new
rules known as “Enhancing Customer Protections Rules”. ese
provisions, among other things, require enhanced customer
protections, risk management programs, internal monitoring and
controls, capital and liquidity standards, customer disclosures, and
auditing and examination programs for FCMs. ese rule changes,
additional legislation or regulations, changes required under the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”) and any new or revised regulation by the
SEC, the CFTC, other U.S. or foreign governmental regulatory
authorities, SROs or FINRA could have a material adverse
effect on our business, financial condition and operating results.
Changes in the interpretation or enforcement of existing laws
and rules by these governmental authorities, SROs and FINRA
could also have a material adverse effect on our business, financial
condition and operating results. Failure to comply with current
or future legislation or regulations that apply to our operations
could subject us to fines, penalties, or material restrictions on
our business in the future.
Additional regulation, changes in existing laws and rules, or
changes in interpretations or enforcement of existing laws and
rules often directly affect financial services firms. We cannot
predict what effect any such changes might have. Our business,
financial condition and operating results may be materially
affected by both regulations that are directly applicable to us