Header graphic for print
Securities Compliance Sentinel Analysis of cutting-edge securities industry issues

Category Archives: Compliance and Supervision

Subscribe to Compliance and Supervision RSS Feed

SEC Cracks Down on Compliance and Surveillance Failures

Posted in Compliance and Supervision, Insider Trading, SEC Compliance, SEC Enforcement, Uncategorized

Earlier this week, the Securities and Exchange Commission agreed to settle charges with a company related to prevention and detection of potential insider trading.  The SEC alleged that the company failed to enforce policies and procedures to prevent and detect securities transactions that could involve the misuse of material, nonpublic information, and that the company… Continue Reading

Who wants some advice regarding cyber-threats?

Posted in Books and Records, Broker-Dealer Regulation, Collateral Consequences, Compliance and Supervision, Cyber-Security, Federal and State Criminal Activities, Financial Industry Trends, FINRA Compliance, Investment Adviser Regulation, Investment Company Regulation, SEC Compliance

A recent article in Onwallstreet.com highlighted certain areas of focus for investment advisors/broker-dealers when it comes to addressing cyber-threats. The article focused on four areas of particular significance. First, a firm must have a robust risk assessment approach to cyber-security. After all, a firm cannot develop and deploy cybersecurity policies and procedures unless and until… Continue Reading

Takeaways from the NYSE glitch

Posted in Compliance and Supervision, Cyber-Security, Securities Exchanges, Uncategorized

Earlier this week, the New York Stock Exchange halted trading for nearly four hours due to a technical “glitch”.  While the shutdown caused a lot of uncertainty among investors and ruffled some feathers on Wall Street, there are some important takeaways for securities practitioners. This was a reminder of the importance of data security.  The… Continue Reading

Do you really need a reason why not to provide your client with a personal email address

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, Investment Adviser Regulation, Law Firms and Lawyers, Public Customer Arbitrations

Not too long ago, I tried a case that had, among other issues, the improper use of the advisor’s personal email account. That improper use serves as a valuable lesson of what can go wrong when you deviate from using the firm approved email. The client emailed complaints about the handling of the account to… Continue Reading

So why is that you want to be a CCO

Posted in Compliance and Supervision, Investment Adviser Regulation, SEC Compliance, SEC Enforcement

Recent SEC enforcement actions suggest that being a CCO is not all that it’s cracked up to be; the SEC recently sanctioned two CCOs. SEC Commissioner Gallagher’s dissents and his recent comments regarding those dissents have really framed the issue. The SEC Rules only provide that an “adviser” must have and implement written supervisory procedures.… Continue Reading

So who really thinks the SEC is not focused on elder investors

Posted in Breach of Fiduciary Duty, Broker-Dealer Regulation, Compliance and Supervision, Conflicts of Interest, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

If there is any question that the SEC is focused on elder investor issues, look no further than its recent program announcement. The SEC initiated a program designed to examine retirement planning guidance. Under this program, the SEC intends to explore whether the compensation advisers receive presents a conflict of interests and, if so, how… Continue Reading

Who Wants Additional Guidance On Dealing With Customers With Diminished Capacity

Posted in Compliance and Supervision, Financial Industry Trends, FINRA Compliance, SEC Compliance

On June 2, the SEC published an investor Bulletin on Planning for Diminished Capacity and Illness (the “Bulletin”). Previously, the SEC and FINRA issued a National Senior Investor Initiative. Clearly, FINRA and the SEC think that senior issues, such as diminished capacity, require a heightened focus by firms and individual advisors when it comes to… Continue Reading

So You Think That You Really Know Your Customer

Posted in Arbitration, Compliance and Supervision, Registered Representatives

If the recent National Senior Investor Initiative of the SEC and FINRA taught us anything, it was the tremendous importance to know your customers. This takes on more significance when you are working with seniors. You may ask why does “knowing your customer” take on any more significance for these clients. For one, an investor’s… Continue Reading

So What Does The SEC Think About Cybersecurity

Posted in Breach of Fiduciary Duty, Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, FINRA Compliance, Investment Adviser Regulation, Investment Company Regulation, SEC Compliance

At the end of last month, the SEC provided a guidance update on cybersecurity for registered investment companies and registered investment advisors. This guidance is equally instructive for broker-dealers and registered representatives. Cyber threats are numerous and ever changing with technology. The SEC provided the guidance to highlight the importance of having a robust cybersecurity… Continue Reading

What The Heck Is A Senior Designation

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

That is one of the questions FINRA sought to answer in its recent National Seminar Investor Initiative. FINRA confirmed that many representatives use such designations, but some of them are bogus or no better than a certificate you find as a prize in a cereal box. The problem is that some representatives use these bogus… Continue Reading

Why Reverse Churning Does Not Create Cream From Butter.

Posted in Arbitration, Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Public Customer Arbitrations, Registered Representatives

For years, firms have been using wrap products to charge an annual fee based upon the value of assets under management regardless of the number of trades, as opposed to fees per trade. In other words, wrap accounts were an effective tool to avoid churning claims because the customer theoretically could trade daily and only… Continue Reading

The SEC Cracks Down on Anti-Whistleblower Agreements

Posted in Compliance and Supervision, Financial Industry Trends, SEC Compliance, SEC Enforcement, Whistleblowers

Around this time last year, the Securities and Exchange Commission’s Office of the Whistleblower warned lawyers that they may be disciplined for drafting contracts to incentivize whistleblowers to not bring alleged company wrongdoing to the SEC’s attention.  It appears the SEC is beginning to make good on its threat.  Last week, the SEC resolved its… Continue Reading

Is This A Preview of FINRA’s Approach to Rule 3110(e)

Posted in Broker-Dealer Regulation, Compliance and Supervision, FINRA Compliance, FINRA CRD, FINRA Enforcement, Raiding/Moving Firms, Registered Representatives

In a recent Acceptance, Waiver and Consent (“AWC”) a broker dealer was censured and fined for, among other things, the failure to conduct an adequate pre-hire investigation of a registered representative. The importance of this AWC is that it may signal FINRA’s mindset for what firms must do under Rule 3110(e). Under Rule 3110(e), FINRA… Continue Reading

How to avoid being sued 2.0

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

Over the years that I have defended financial advisors and their firms, I have frequently spoken and written about ways to avoid the risk of being sued. I prepared a guidebook a couple of years ago that detailed some common sense approaches to risk avoidance. I have updated that guidebook to take into account new… Continue Reading

Cybersecurity: FINRA’s Take

Posted in Compliance and Supervision, Cyber-Security, Financial Industry Trends, FINRA Compliance, SEC Compliance

We recently highlighted the Security and Exchange Commission’s 2014 OCIE Cybersecurity Initiative.  Not to be outdone, FINRA also released its Report on Cybersecurity Practices, which provided a much more in-depth report on cybersecurity.  Therein, FINRA offered its own insights into what it expects from firms’ cybersecurity risk management practices: FINRA recommends that firms have a… Continue Reading

Do Not Fall Behind On Cybersecurity

Posted in Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, Financial Industry Trends, FINRA Compliance, Investment Adviser Regulation, SEC Compliance

Cybersecurity is more than just a trending topic.  As hacks and leaks continue to be publicized, the Securities and Exchange Commission is stepping up its game and increasing its focus on cybersecurity compliance. The SEC’s Office of Compliance and Inspections recently released an initial summary of their findings from their 2014 OCIE Cybersecurity Initiative.  The… Continue Reading

FINRA in 2015 – High-Risk and Recidivist Brokers

Posted in Broker-Dealer Regulation, Compliance and Supervision, Financial Industry Trends, FINRA Compliance, Registered Representatives

FINRA is planning on turning up the heat on perceived “high-risk” brokers this year, and the firms that hire them.  Continuing our discussion regarding FINRA’s 2015 Regulatory and Examinations Priorities Letter, this blog entry will discuss FINRA’s planned activities to prevent and/or stop registered representatives from engaging in actual misconduct. In an effort to protect the… Continue Reading

FINRA in 2015 – Wealth Events

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

FINRA’s 2015 Regulatory and Examinations Priorities Letter provides guidance regarding areas of focus in the “Sales Practice” for this year.  Previously, we discussed the various sales products that FINRA will be monitoring this year; and yesterday, Josh Horn discussed FINRA’s recently adopted Supervision Rules that affect the Sales Practice.  This blog entry will discuss FINRA’s focus… Continue Reading

What Are You Doing About The New Supervision Rules

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

FINRA noted in its exam priorities that it will be focusing on firms’ compliance with the new supervision rules (FINRA Rules 3110, 3120, 3150 and 3170).  These rules became effective on December 1, 2014. Now that two months have passed since their effective date, firms should have taken the changes into account in their written… Continue Reading

Are You Charging Your Customers Too Much

Posted in Books and Records, Breach of Fiduciary Duty, Compliance and Supervision, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

If you are not asking that question, FINRA may as its recent $350,000 fine levied against a major brokerage house indicates.  In that instance, FINRA found that the brokerage charged 20,000 customers a total of $2.4 million too much for certain transaction fees. For its part, the SEC is going after private equity firms because… Continue Reading

FINRA in 2015 – Sales Products

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

Earlier this month, FINRA released its 2015 Regulatory and Examinations Priorities Letter.  In the letter, FINRA lays out its 2015 priorities, which focus on three general areas: 1) Sales Practice; 2) Financial and Operational Priorities; and 3) Market Integrity.  This blog entry will discuss FINRA’s “Sales Practice” priority. FINRA is focused on various sales products… Continue Reading

Why You Need To Think Twice About That New Hire

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

Starting July 1, member firms are required to have written procedures to verify the accuracy and completeness of the information in a registered representative’s U-4 within 30 days of the U-4 being filed with FINRA.  The question that arises is whether the expense of this new type of “investigation” is worth it. In short, member… Continue Reading

Whistleblower Tips Continue to Rise in 2014

Posted in Compliance and Supervision, Dodd-Frank, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

The number of whistleblower tips to the Securities and Exchange Commission (SEC) continues to rise, according to the SEC’s 2014 Annual Report to Congress on the Dodd-Frank Whistleblower Program.  In the November 17, 2014 report, Sean X. McKessy, Chief, Office of the Whistleblower, notes that his office received 3,620 whistleblower tips in Fiscal Year 2014,… Continue Reading