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

Cyber-Security – What Do Enforcement Actions Tell You

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

In a recent NSCP Currents article, Giselle Casella addressed what every compliance office must know about cyber-security.  One of the more compelling lessons was what can be learned from enforcement actions dealing with cyber-security.  Cyber-security enforcement actions fell into the following groupings:  Inadequate security policies and procedures; Failure to enforce policies and procedures; Failure to… Continue Reading

Changes in SEC Enforcement Function

Posted in Compliance and Supervision, SEC Enforcement, SEC Organization

Adjustments to the SEC’s enforcement function is enabling it to be more aggressive with individuals and corporations when pursuing allegedly violative behavior. The SEC’s ongoing push to strengthen penalties for wrongdoing attempts to further deter current and future bad actors, stiff monetary penalties and sanctions not only punish alleged violations but send clear signals of… Continue Reading

Should The SEC Turn Its Attention to Culpability and Harm?

Posted in Compliance and Supervision, SEC Compliance, SEC Enforcement

Enforcement attention on activities involving the most culpable individuals and firms, and the most harm to investors may be the next phase in SEC enforcement. There is an opportunity cost to its enforcement actions.  It might be the best use of the SEC’s resources not to sue over technical violations and other deficiencies that do… Continue Reading

Guidance Assists Compliance and Supervision Decisions

Posted in Compliance and Supervision, SEC Compliance, SEC Enforcement

The “message” behind the SEC’s Division of Trading and Markets’ recent guidance on supervisory liability is that the agency will not target compliance officers as the “guarantors” of their firms’ compliance. The Division views compliance officers, typically, as having a more advisory consultative role and only when compliance personnel move out of that role and… Continue Reading

The More Things Change the More They Stay the Same…SEC Develops “New” Task Force Geared at Broker-Dealer Enforcement

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

The Securities and Exchange Commission Enforcement Division has created a new task force to scrutinize broker-dealer practices. This unit existed in the 1980’s and 1990’s and was phased out.  It is now being brought back.  The SEC started developing the task force in September and the Financial Industry Regulatory Authority has also established an enforcement… Continue Reading

SEC OCIE Exam Priorities Include Dual Registrants, Technology Use, JOBS Act

Posted in Broker-Dealer Regulation, Compliance and Supervision, Investment Adviser Regulation, JOBS Act

The SEC’s Office of Compliance Inspections and Examinations’ exam priorities include issues arising from the continuing convergence of the broker-dealer and investment adviser professions. Other OCIE priorities include registrants’ use of technology; applying its “presence exams” to investment advisers who have never been examined; and reviewing the JOBS Act.  Presence exams are risk-based reviews of… Continue Reading

Supervisory Liability For Broker-Dealer Compliance and Legal Personnel

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

The SEC’s Division of Trading and Markets issued guidance regarding supervisory liability that may arise under the Securities Exchange Act of 1934, concerning the role and duties of chief compliance officers and other legal and compliance personnel at broker-dealers.  See http://www.sec.gov/divisions/marketreg/faq-cco-supervision-093013.htm The SEC may institute proceedings against a “supervisor” associated with a broker-dealer, “if someone… Continue Reading

What Are You Doing About Cyber-Security

Posted in Books and Records, Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, FINRA Compliance, FINRA Enforcement, SEC Compliance, SEC Enforcement

It was apparently not enough that the SEC and FINRA made cyber-security an exam priority for 2014, but the Department of the Treasury has now focused on this pervasive issue.  In recent comments, Treasury Secretary Lew has urged financial firms to step it up when protecting against cyber-attacks.  Stories of cyber-attacks are becoming so common… Continue Reading

Should You Even Care About A Uniform Fiduciary Duty

Posted in Arbitration, Broker-Dealer Regulation, Compliance and Supervision, Dodd-Frank, FINRA Compliance, SEC Compliance, Uncategorized

In an Investment News article written by Mark Schoeff, he reported that the push for a uniform fiduciary standard for broker-dealers and investment advisors has become a bit stagnant. In fact, it was reported that the prospects for such a uniform rules have waned over the years notwithstanding the general consensus that there should be such a… Continue Reading

FINRA In The Clouds

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

FINRA continues to boost its surveillance capabilities by adopting new technologies like the cloud.  Reuters recently interviewed the CIO of the Financial Industry Regulatory Authority, Steven Randich, who commented on the agency’s ongoing 30-month roll-out of cloud computing.  According to Randich, by moving to the cloud, FINRA will get “dramatic processing and storage scale at… Continue Reading

EFFECTIVE COMPLIANCE PROGRAM COULD HAVE ENFORCEMENT PAYOFF

Posted in Compliance and Supervision, SEC Compliance, SEC Enforcement

An effective corporate compliance program may temper a Securities and Exchange Commission enforcement action, or – if there is an enforcement action – limit the penalties imposed.  See http://www.sec.gov/News/Speech/Detail/Speech/1370539872783#.UlbOPVOHiJR. Agency enforcers make judgments every day regarding the entities and individuals under investigation, and companies that demonstrate an effective compliance program and a genuine commitment to… Continue Reading

I Tweet, You Tweet, We All Tweet

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

The SEC recently issued two interpretations that address your use of interactive social media, like Twitter, in accordance with the securities laws.   These interpretations permit your firm to now use a hyperlink to satisfy the legend requirements and, at the same time, limit your responsibility where your communications are retransmitted, like a retweet.  The major… Continue Reading

Do You Really Want To Be A Dual Registrant

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

One of the priorities of the SEC National Examination Program is dual registrants; entities that provide both brokerage and investment advisory services.  The focus of the program on dual registrants begs the question why a firm would want to be one.  The answer to that question should be an obvious.  Being a dual registrant allows… Continue Reading

You Knew It Was Coming… SEC Cybersecurity Exams

Posted in Broker-Dealer Regulation, Compliance and Supervision, Cyber-Security, SEC Compliance

We have repeatedly warned broker-dealers and registered investment advisers that they needed to be prepared as it related to cybersecurity.  Now, the SEC’s Office of Compliance Inspections and Examinations has announced that it will conduct cybersecurity examinations of these entities.  See http://www.sec.gov/ocie/announcement/Cybersecurity+Risk+Alert++%2526+Appendix+-+4.15.14.pdf.  These examinations will be conducted as part of a ”sweep exam,” and will assess… Continue Reading

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