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Category Archives: FINRA Enforcement

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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

FINRA Issues 2014 Regulatory and Examination Priorities

Posted in FINRA Compliance, FINRA Enforcement

Just yesterday, FINRA issued its annual regulatory and examinations priorities letter.   In keeping with its tradition, FINRA’s list keeps getting longer with each passing year, and it does not seem that FINRA has deleted anything from prior years.  Nonetheless, we will be discussing this letter in more detail in later posts but wanted to let everyone know that… Continue Reading

FINRA and Alt Funds Risks

Posted in FINRA Compliance, FINRA Enforcement, Hedge and Private Equity Funds

FINRA issued an investor alert regarding the “unique characteristics and risks” presented by “alternative funds.”  See  http://op.bna.com/srlr.nsf/r?Open=rhil-98ktb8. In a release, FINRA explained that “alt” mutual funds are United States Securities and Exchange Commission-registered and publicly offered, and hold “more non-traditional in-vestments and employ more complex trading strategies than traditional mutual funds.”  Alt funds, according to… Continue Reading

FINRA’s Private Placement Concerns

Posted in FINRA Compliance, FINRA Enforcement, Private Placements, Uncategorized

FINRA is beginning investigations into private placements.  New FINRA Rule 5123 requires member firms involved in a private stock offerings to provide investors with detailed information on the transaction prior to the sale, and to file that information with FIRNA within 15 days after the first sale. The rule went into effect in December 2012…. Continue Reading

So Who Is My Lawyer Anyway?

Posted in CFTC Enforcement, FINRA Enforcement, Internal Investigations, Law Firms and Lawyers

A firm faced with a regulatory investigation should hire outside counsel to bring objective analysis to the situation. Although it may seem simple, the question that must first be addressed is who the lawyer represents. If the firm itself is the subject of the inquiry, then the firm needs representation. However, that same lawyer should… 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 Who Wants To Know Some Secrets About FINRA Suitability Examinations

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

In Regulatory Notice 13-31, FINRA gave guidance regarding its approach and expectations when it conducts a suitability examination.  FINRA’s critical starting off point begins with its analysis of firm controls through interviews with principals responsible for preparing the firm’s policies and procedures. FINRA is providing this guidance as it has only been a little more… Continue Reading

So What Do FINRA’s Disciplinary Statistics Mean For You?

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

As noted in a report by the Sutherland Asbill firm, although over the first six months of 2013 FINRA has brought nearly the same number of disciplinary cases as the same period in 2012, fines are down significantly.  In addition, FINRA’s areas of focus have also changed.  So what does this mean for you? For… Continue Reading

FINRA May Publicly Share Disciplinary Complaints Against Brokers

Posted in Broker-Dealer Regulation, FINRA Enforcement

Much to the disappointment of brokers, the SEC recently approved a proposed rule that allows FINRA to publicly release copies of any disciplinary complaint or decision it issues, including the names of the parties involved.  Prior to approval of the rule, complaints appeared in summary format on FINRA’s BrokerCheck web portal.  Now, unredacted complaints will be… 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

Who Wants To Know What FINRA Has Planned For Your CRD

Posted in Arbitration, Broker-Dealer Regulation, Financial Industry Trends, FINRA Compliance, FINRA Enforcement, Registered Representatives

The Financial Industry Regulatory Authority (FINRA) recently announced that it expects to send a proposal to the SEC to make it easier for registered representatives to clear their record of black marks.  Up until now, the process for expungement has been drawn out and extremely limited in application. The primary issue FINRA is attempting to… Continue Reading

What Broker-Dealers Need To Know About FINRA

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

Recently, FINRA publicized penalties against three companies and associated individuals for failing to implement adequate anti-money laundering procedures.  These fines should serve as a warning to the industry as a whole that FINRA is very focused on AML policies and procedures. In its announcement, FINRA noted that the firms failed to implement adequate procedures to… Continue Reading

Did You Know That Some Of Your Products Require Heightened Supervision

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

In a recent speech, FINRA CEO, Richard Ketchum, told broker-dealer compliance officers that, although firm compliance programs have improved, there must be heightened supervision when it comes to complex products.  In light of these comments, you must assume that the supervision over the sale of complex products will be a focus of your next examination…. Continue Reading

Some Things You Should Know About Compliance And Ethics

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

At a recent conference held by the SEC, a panel highlighted the importance of compliance and ethics for broker-dealers.  The big take away from the conference was that a strong compliance program must have a solid ethical foundation. In other words, a compliance program is not simply making sure that your representatives check the right… Continue Reading

So You Thought You Wanted To Be A Securities Lawyer

Posted in CFTC Enforcement, Federal and State Criminal Activities, Financial Industry Trends, FINRA Enforcement, NFA Enforcement, SEC Enforcement

Lawyers have often been the brunt of cruel jokes. But now, a recent study reported on by the Bureau of National Affairs shows, lawyers are the target of securities regulators. Why the sudden interest? For one, cooperation initiatives between regulators and those caught violating securities law convince these people to turn on their lawyer who… 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

Who Wants To Know About Enhanced FINRA Discipline

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

A recent study by the Sutherland Asbill law firm revealed that FINRA brought 4% more disciplinary cases in 2012 as compared to 2011.  In doing so, FINRA jacked up its fines another 15%, for a grand total of $78 million. Besides FINRA showing it still has muscle to flex, what should member-firms take away from… Continue Reading