Broker-dealers are reminded, beginning this spring, the SEC’s Office of Compliance Inspections and Examinations (OCIE), and the SEC’s Division of Trading and Markets, is partnering with FINRA to sponsor regional compliance outreach programs for broker-dealers. The programs will take place in Denver, Los Angeles, Chicago, Miami, Philadelphia, and New York. Registration is open to all broker-dealer risk, audit, legal, and compliance professionals. Continue reading “SEC and FINRA To Hold 2014 Regional Outreach to Broker-Dealers”
Thinking of conditioning the settlement of a customer arbitration claim on the customer agreeing to expunge her complaint against you? Think again. The FINRA is now awaiting the SEC’s approval of a FINRA rule proposal that would prohibit associated persons from conditioning settlements of customer disputes on, or otherwise compensating customers for, an agreement not to oppose a request to expunge information from an associated person’s Central Registration Depository (CRD) record. Continue reading “The End of Not Opposing Expungements in Return For Settlement?”
Last week I wrote about FINRA’s 2014 exam priorities. This week, the SEC announced its 2014 examination priorities covering a number of topics important to investment advisers, investment companies, broker-dealers, clearing agencies, exchanges and other self-regulatory organizations, hedge funds, private equity funds, and transfer agents.
While the SEC makes clear the list is not exhaustive, areas that firms will see heightened scrutiny include fraud detection and prevention, corporate governance and enterprise risk management, technology controls. Included also are issues concerning the growing relationship between broker-dealers and investment advisers, new rules and regulations, and retirement investments and rollovers. Continue reading “An Outline of The SEC’s 2014 Examination Priorities”
As it does every year since 2006, the FINRA has just released its 2014 Regulatory and Examination Priorities letter highlighting significant risks and regulatory issues for member firms and how FINRA plans to address such matters in its examination of broker-dealers. The hope is that broker-dealers will use the letter to identify risk exposures to enhance their supervisory, compliance and risk management programs to protect investors, the integrity of the markets and themselves. Unfortunately, for some the letter goes unheeded until later the firm is ”shocked” to learn during a FINRA cycle exam that the examination staff is spending so much time reviewing the firm’s records on an issue raised in the letter. Continue reading “FINRA’s 2014 Broker-Dealer Exam Focus”
Advisers are reminded the SEC’s annual compliance outreach program National Seminar will be held on January 30, 2014, at its headquarters in Washington, D.C. Investment adviser and investment company senior officers, including chief compliance officers (CCOs) are invited to register and attend.
This year’s agenda will likely include panel discussions with SEC staff from the Office of Compliance Inspections and Examinations (OCIE), Division of Investment Management, and Division of Enforcement’s Asset Management Unit and investment adviser personnel. The agenda’s topics will include SEC exam priorities in 2014, private fund advisers, registered investment companies, valuation, and the role of the CCO. Continue reading “Reminder: SEC National Compliance Outreach Program”
FINRA has ordered Atlanta-based broker-dealer, J.P. Turner & Company, L.L.C. to pay $707,559 in restitution to 84 customers for sales of unsuitable leveraged and inverse exchange-traded funds (ETFs) and for excessive mutual fund switches.
FINRA’s action against J.P. Turner is another reminder of the need for broker-dealers to carefully scrutinize the suitability of such non-conventional investments products like inverse exchange-traded funds.
While FINRA mutual fund switch violation cases (a practice FINRA has addressed repeatedly) are more common, inverse ETFs sales practice violations case have not been as prominent, but should come as no less a surprise. Continue reading “Compliance Risks With Leveraged and Inverse ETF Sales”
The SEC has just published additional guidance for those venture capital funds advisers relying on an exemption to not register as investment advisers under the Investment Advisers Act of 1940, and who may worry that the way they structured a fund (or whether certain actions discussed below) might jeopardize the ability to rely on the exemption. In response to such inquiries, the SEC’s Division of Investment Management has provided additional guidance in the form of five examples or “scenarios” for advisers relying on the “venture capital fund” exemption or “VC Exemption” where they advise one or more venture capital funds. First, some background:
In Regulatory Notice 13-76, FINRA reminds broker-dealers and investment advisers that the 2014 Renewal Program began on November 11, 2013, when FINRA made the online Preliminary Renewal Statements available to all firms on Web CRD/IARD.
Beginning November 1, 2013, firms could begin submitting post-dated Form U5, BR Closing/Withdrawal, BDW and ADV-W filings via Web CRD/IARD. FINRA’s 2014 Renewal Program Calendar reminds of critical renewal dates. First, Preliminary Renewal States were available beginning November 11, 2013 on Web CRD/IARD. Second, by December 13, 2013, full payment of Preliminary Renewal Statements is due. Third, on January 2, 2014, Final Renewal Statements are available on Web CRD/IARD. Fourth, full payment of Final Renewal Statements is due by January 10, 2014.
FINRA also warns firms that failure to remit full payment of their Preliminary Renewal Statements to FINRA by December 13, 2013, may cause the firm to become ineligible to do business in the jurisdictions where it is registered, effective January 1, 2014 and be subject to late fees.
As they were required to do under the Dodd-Frank Act, the SEC announced that it has now voted to adopt permanent rules requiring municipal advisors to register. Previously, and immediately after Dodd-Frank, municipal advisors were placed under a temporary registration requirement, and following it, more than 1,100 municipal advisors registered with the SEC.
The permanent rule, the SEC says, will address the long concern about the fallout from losses suffered, in part, by municipalities purchasing complex derivatives products and relying on the advice from unregulated advisors — advisors, who municipalities may not have been aware, may have had conflicts of interest. In addition to defining the term “municipal advisor,” and who is exempted from that definition, the rule identifies when a person is considered to be providing “advice.” For example, the SEC says, other than general giving information, a person recommending to a municipal entity advice based on a particular need related to municipal financial products or related to the muncipalities’ issuance of municipal securities would be considered providing muncipal advice.
The SEC’s Press Release states that the new rules will be effective 60 days after publication in the Federal Register.
The SEC has issued a new Risk Alert stemming from its observations of the business continuity and disaster recovery planning practices of a number of investment advisers. The alert follows an National Examination Program (“NEP”) review of the plans of approximately 40 investment advisers following Hurricane Sandy. The SEC says the goal is to encourage investment advisers to review their business continuity and disaster recorvery plans (“BCPs”) to improve responses and recovery times for threats that might disrupt market operations.
Certain weakenesses observed, and that advisers would do well to heed, include the following areas:
- Preparation for widespread disruption. Some advisers whose BCPs did not adequately address and anticipate widespread events experienced more interruptions in their key business operations and inconsistent communications with clients and employees.
- Planning for alternative locations. Some advisers who switched to back-up sites or systems reported that the buildings where they usually conduct their business were closed for days. At least, one adviser reported its building was closed for several weeks. Other problems included extended outages of power, phone systems, and internet service and lack of geographically diverse office operations.
- Preparedness of key vendors. Some advisers failed to even evaluate the BCPs of their service providers or keep a list of vendor’s contact information. Some advisers did not acquire or critically review service providers’ Statement on Standards for Attestation Engagements No. 16 reports.
- Telecommunications services and technology. Some advisers failed to hire service providers to make sure back-up servers functioned properly, relying solely on self-maintenance, which led to more interruptions in their operations.
- Communication plans. Poor planning, inconsistencies and weak deployment in how to contact employees during a crisis. Some plans did not identify which employees would execute and implement various parts of the BCP.
- Reviewing and testing. Inadequate testing of operations and systems relative to size and nature of advisory businesses. Some problems here were based on adviser failures to conduct certain critical tests based on costs and other disincentives.
The risk alert also encourages advisers to consider those best practices and lessons learned that were described in the Joint Review of Business Continuity and Disaster Recovery of Firms by the Commission’s National Examination Program, the Commodity Futures Trading Commission’s Division of Swap Dealers and Intermediary Oversight and the Financial Industry Regulatory Authority on August 16, 2013. They are available at http://www.sec.gov/about/offices/ocie/jointobservations-bcps08072013.pdf.
While the alert serves as a friendly reminder, to avoid a potential enforcement action, the advice covered should be reviewed, and where appropriate, implemented. The days of preparing a boilerplate disaster recovery handbook to be left to collect dust on an adviser’s bookshelf have long passed.