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Category Archives: Compliance and Supervision

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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, Uncategorized

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, Uncategorized

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, Uncategorized

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

Reverse-Flash: SEC and FINRA Looking to Slow High-Speed Traders?

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

High-frequency trading is the latest craze hitting the market.  Popularized by Michael Lewis’s Flash Boys, high-frequency or high-speed trading involves the use of sophisticated technological tools and computer algorithms to rapidly trade securities.  According to Bloomberg BusinessWeek, high-frequency trading has been “blamed for making stock exchanges less transparent and markets more volatile [and] has disrupted the process… Continue Reading

Who Wants To Speak With Me, Oh No

Posted in Breach of Fiduciary Duty, Compliance and Supervision, Conflicts of Interest, Registered Representatives

Anyone in a service industry has had that dreaded feeling.  You see your email or caller identification and realize it is “that” client trying to reach you.  The client I reference is that extremely difficult client that we all have. The natural inclination for many of us is to not take the call or respond… Continue Reading

No Admit, No Deny – No Longer?

Posted in Compliance and Supervision, SEC Compliance, SEC Enforcement

Admissions by companies in enforcement actions brought by the Securities and Exchange Commission (SEC) can open the floodgates to follow-on private civil litigation.  Fortunately, the SEC has traditionally settled with companies on a “no admit, no deny” basis.  That has begun to change. As you may recall, in 2011, U.S. District Judge Rakoff of the Southern District of… Continue Reading

So Who Really Thinks They Know Their Customers

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

As the year winds down to an end, financial advisors should be mindful of next year and the years to come.  Now is as good a time as any to make sure that you know your customer.  The year-end gives you a unique opportunity to get in front of your clients and revisit the year… Continue Reading

So What Can Be Done To Avoid The Quandary Of Clients With Dementia

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

As our population ages, more and more financial advisors will have to deal with clients who have dementia or get dementia.  If a client gets dementia, your options may be limited; it may be too late.  The question all firms should consider is are there things a firm can do before its clients show the… Continue Reading

My Client Has Dementia, Now What

Posted in Compliance and Supervision, Conflicts of Interest, FINRA Compliance, Investment Adviser Regulation

What do you do when your elderly client begins to make bizarre withdrawals?  Is there something wrong when your elderly client starts transferring funds to finance a Nigerian soccer teams?  What if a long lost relative comes on the scene and starts influencing the investments and cash withdrawals of an elderly client?  Unfortunately, many financial… Continue Reading

Look Before You Tweet

Posted in Compliance and Supervision, Conflicts of Interest, FINRA Compliance, FINRA Enforcement, Registered Representatives, Social Media

FINRA recently sanction a registered representative for tweets made some time ago.  The offending tweets referenced a stock that he did not disclose that he owned and were otherwise biased and not backed up by facts.  The registered representative was fined $15,000 and given a ten day suspension.  In the larger scheme of things, a… Continue Reading

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