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Category Archives: Compliance and Supervision

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Why Should You Care About Cyber-Security

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

The short answer to this question is that the SEC and FINRA care.  Both regulators have made this issue an exam priority for the year, and it was recently a focus of an SEC roundtable.  We hear of data breaches on nearly a daily basis at retail stores, to name a common target.  But what… Continue Reading

Who Wants To Know Something About FINRA’s New Written Procedures Rule?

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement, Registered Representatives

New FINRA Rule 3110 (effective December 1, 2014) sets out various written procedures and requirements for member firms.  You should pay particular attention to these rules because they suggest those areas of focus in any upcoming examination.  Among other things, new FINRA Rule 3110.06 provides for the review of correspondence and internal communications.  Importantly, this… Continue Reading

SEC Discourages Incentivizing Whistleblowers to Keep Complaints In-House

Posted in Compliance and Supervision, Dodd-Frank, SEC Compliance, SEC Enforcement

What’s good for the goose is apparently not so good for the gander, as the SEC warns in-house attorneys against whistleblower contracts.  The SEC has been financially incentivizing whistleblowers to bring securities fraud complaints to the agency’s attention for years, with increasing success.  The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 empowers… Continue Reading

Suspicious Activity Reports, FCMs and IBs, Is That A Marriage Made In Heaven

Posted in CFTC Compliance, Compliance and Supervision, Money Laundering, Uncategorized

Suspicious Activity Reports (SARs) have been a useful tool for financial institutions to report financial fraud while, at the same time, prohibiting the reporting institution from disclosing the existence of a SARs in response to a third-party request.  In 2010, the Financial Crimes Enforcement Network (FinCEN), amended this regulation to extend the prohibition against disclosure… Continue Reading

SEC Announces Exam Priorities

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Hedge and Private Equity Funds, Investment Adviser Regulation, Investment Company Regulation, SEC Compliance, SEC Enforcement

Tis the season for the regulators to announce their examination priorities.  No less than the SEC’s Office of Compliance Inspections and Examinations released its 2014 Examination Priorities for its National Examination Program (“NEP”). In particular, the SEC identified several new issues for registered investment advisers, primarily for those RIAs, who are at least three years old and have never… Continue Reading

It Is The End Of The Year — Do You Know Your Customer

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance

Now that the year is drawing to an end and we reflect back on our successes and, dare I say, failures over the last year, financial advisors and brokers should take the time now to review their respective client portfolios. This review should be your standard practice as you plan for next year. The premise… Continue Reading

Fixed-Income Commissions allowed for Brokerage and Research Services

Posted in Broker-Dealer Regulation, Compliance and Supervision, Registered Representatives

The Securities and Exchange Commission Division of Trading and Markets granted relief for institutional asset managers participating in a brokerage firm’s client commission arrangements.  See Carolina Capital Mkts. Inc., SEC No Action Letter, avail. 7/30/13; http://www.sec.gov/divisions/marketreg/mr-noaction/2013/carolinacapital-073113-15a.pdf. Specifically, the Staff said it would not object if instructional asset managers receive eligible third-party brokerage and research services… Continue Reading

What Do Ethics Have To Do With It?

Posted in Broker-Dealer Regulation, Compliance and Supervision, Corporate Governance, Financial Industry Trends, FINRA Compliance, FINRA Enforcement

Having a strong compliance program is not the end of a firm’s obligation to itself and its customers. All firms should also make sure that it has a strong ethics program. An ethics program should include, among other things, the following: A written code of conduct; Having an ethical tone at the top of the… Continue Reading

Why The Line Between Supervision And Compliance Should Not Be Blurred

Posted in Compliance and Supervision, FINRA Compliance, FINRA Enforcement

In enforcement proceedings, it is no secret that FINRA focuses on supervision. The question becomes how to avoid being considered a supervisor when you are not. This question is even more difficult in small firms who do not have the luxury of large and distinct compliance departments. Generally, a person is considered a supervisor if… Continue Reading

How To Manage Hold Recommendations Under Rule 2111

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement

One of the greater challenges arising from the implementation of Rule 2111 in July 2012 was how firms would manage hold recommendations because they now have to be suitable. FINRA noted in a recent Regulatory Notice focused on suitability examinations what some firms are doing right when it comes to handling hold recommendations. FINRA recognized… Continue Reading

Who Wants To Know The Red Flags In A FINRA Suitability Examination

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement

In Regulatory Notice 13-31, FINRA identified those areas of inquiry it will likely make when conducting a suitability examination.  Once those questions are answered, and FINRA examines the firm’s controls, FINRA will determine whether to expand its examination. An examination is typically expanded when FINRA uncovers a material deviation between the procedures and actual practices. … Continue Reading

So You Don’t Think You Need A Business Continuity Plan; Here Are 15 Considerations Why You Should Have One

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, Investment Adviser Regulation, Registered Representatives, SEC Compliance

Now that summer is in its waning days, the hurricaine season is about to take off.  Hurricaine Sandy had a devastating impact on the financial markets, closing the equity markets for two days and some firms for at least a week.  The SEC, CFTC and FINRA recently provided financial firms a framework to improve their… Continue Reading

A Secret Concern With Small Firm Supervision And Compliance

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Enforcement, SEC Compliance, SEC Enforcement

A recently released compliance testing survey of the Investment Adviser Association and ACA Compliance showed that 90% of all firms claimed to have a full-time person designated to the compliance function, but nearly two thirds of all chief compliance officers have multiple roles within the firm.  Unless I missed that day of new math, these… Continue Reading

So Do You Really Want To Arbitrate Customer Claims

Posted in Arbitration, Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement, Public Customer Arbitrations, Securities Litigation

In the 17 plus years of defending broker-dealers in FINRA arbitrations, I and my clients have relied upon the fact that at least one arbitrator would have industry experience.  In my experience, having that presence did not create an unfair advantage for the firm.  Instead, it provided the panel with a knowledgeable resource that would… Continue Reading

What Does FINRA Rule 3270 Mean To You

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement, Money Laundering, Ponzi Schemes, Registered Representatives, Social Media

The outside business activities of registered persons have the potential for causing your firm significant liability, especially where those activities are unknown to the firm, involve firm customers and constitute a fraud.  FINRA 3270 only requires the registered person to provide notice to the firm before engaging in the activity, but should the firm do more…. Continue Reading

Do You Want To Know What Keeps The Regulator Up At Night

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Investment Adviser Regulation, SEC Compliance, SEC Enforcement, Social Media

At a regulator’s round table during a recent National Society of Compliance Professionals meeting, the regulators framed out those issues that are keeping them up at night.  The issues include: The increasing complexity of investment products. Social media beyond things like Twitter or LinkedIn. Cyber security. Cyber fraud; i.e. hacking into customer accounts. AML issues… Continue Reading

What Investment Advisers Need To Know About The SEC

Posted in Compliance and Supervision, Financial Industry Trends, Investment Adviser Regulation, SEC Compliance

The SEC recently announced that its top priority is to increase the number of investment adviser examinations it conducts on an annual basis.  Considering that the SEC only examined 8% of all investment advisers in 2012 (where 40% have never been examined), the SEC could only increase the number of such examinations. The talk, for… Continue Reading

What You Need To Know About Identity Theft

Posted in Compliance and Supervision, Cyber-Security, Investment Adviser Regulation, SEC Compliance

Hardly a day goes by without hearing horrible stories of a person having their identity stolen and their finances ruined as a result.  The SEC is now stepping into this hornet’s nest by adopting new rules for financial advisors who have the authority to move client funds to third parties.  The new rules require firms… Continue Reading

Why Should You Care About FINRA’s Proposed Amendment To Rule 8313

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA Enforcement

FINRA recently proposed amending Rule 8313 regarding the public release of disciplinary complaints and decisions.  For anyone conscious through the financial crisis commencing in 2008, this proposal should come as no shock.  Regulators are becoming more and more all about public disclosures.   FINRA has proposed, among other things, to allow for the public release of unredacted disciplinary complaints or… Continue Reading

Do You Want To Know One Of The Greatest Risks To Your Practice

Posted in Compliance and Supervision, Public Customer Arbitrations, Registered Representatives, Securities Litigation

In the years that I have defended broker-dealers and investment advisors from customer-initiated complaints, a common theme has emerged.  The bulk of the complaints seem to come from older clients.  Unfortunately, the aging baby boomers may exacerbate this issue. In a recent Investment News article by Mary Beth Franklin, she reported on a recent study reflecting… Continue Reading

Who Wants To Know How To Weed Out Rogue Stockbrokers

Posted in Compliance and Supervision, Dodd-Frank, FINRA Compliance, Registered Representatives, SEC Compliance

My partner, Ernest Badway, recently blogged about the dangers of a lawyer referring a client to a rogue stockbroker.  The question for the broker-dealer/investment advisors is how do you uncover rogue brokers or prevent them from infecting your firm. In all of the years that I have defended broker-dealers and investment advisors in cases involving… Continue Reading

Gallagher Hopes SEC Soon Will Provide Clarity on Failure-to-Supervise Liability

Posted in Compliance and Supervision, International Securities Regulation, SEC Compliance

In light of the Urban decision, the SEC has indicated it intends on expounding on its views of failure to supervise for legal and securities personnel. Although several of the federal securities laws indicate the SEC has the authority to bring actions for failing to supervise or detect securities law violations, there has been no true… Continue Reading

You Should be Concerned With Expanding BrokerCheck

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, Investment Adviser Regulation, Public Customer Arbitrations, Registered Representatives

FINRA announced that it is seeking proposed rule changes to make it easier for investors to use BrokerCheck.  See http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/. These proposed amendments to FINRA Rule 2267, Investor Education and Protection, would require member firms to include a BrokerCheck reference on their websites and those of any associated person.  Additionally, FINRA Rule 8312, BrokerCheck Disclosure,… Continue Reading

You Need to Be Concerned About Analyst Communications under the JOBS Act

Posted in Compliance and Supervision, JOBS Act, Research Analysts, SEC Compliance, State Enforcement

The SEC’s Division of Trading and Markets released guidance on the JOBS Act’s elimination of restrictions on analyst communication and research reports concerning initial public offerings of emerging growth companies. The real quandary that the guidance addressed was related to the Elliot Spitzer settlement between regulators and major investment banks announced in 2003.  This settlement required strict firewalls… Continue Reading