Author: James Lundy

James G. Lundy

James G. Lundy represents clients in Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), self-regulatory organization, and other financial regulatory agency investigations and examinations, and compliance and governance counseling, white collar criminal investigations, and complex business litigation. With 12 years of senior SEC experience and more than two years of in-house experience at a futures and securities brokerage firm, Jim has developed an in-depth working knowledge of the various regulatory bodies with enforcement, examination, and policy oversight of the securities and futures industries.

View the full bio for James Lundy at the Drinker Biddle website.

Posts by James Lundy:


Seven States and D.C. Aggressively Challenge Reg BI

On September 9, 2019, the states of New York, California, Connecticut, Delaware, Maine, New Mexico and Oregon, and the District of Columbia (collectively, the States) filed a complaint for declaratory and injunctive relief against the SEC challenging Reg BI. By way of background, the SEC finalized Regulation Best Interest: The Broker-Dealer Standard of Conduct (Reg BI or the Final Rule) on June 5, 2019. The SEC also issued a final rule regarding Form CRS and two final Commission Interpretations. The implementation date for Reg BI and Form CRS is June 30, 2020.

Continue reading “Seven States and D.C. Aggressively Challenge Reg BI”

Financial Services Industry’s New Regulation Best Interest Standard of Care

On June 5, 2019, the Securities and Exchange Commission (SEC) approved the Regulation Best Interest Final Package, the new disclosure requirements that accompany the financial services industry’s new Regulation Best Interest standard of care. In light of the significance of Regulation Best Interest (Reg BI) for the financial services industry, Drinker Biddle & Reath’s Best Interest Compliance Team is publishing a series of articles on the SEC’s finalized “Reg BI Package” of rules and guidance.

One of the four parts of that package is Form CRS − a mandate that broker-dealers and investment advisers with retail investors (natural persons, trusts or entities representing natural persons) provide a two-page relationship summary disclosing information about their firm before a new client enters an investment adviser’s agreement or engages the services of a broker-dealer, or in the case of an existing client when there is any material change in the nature and scope of the relationship.

This disclosure must be concise, direct and made in plain language, taking into consideration the level of financial experience of retail investors. The specifics of the disclosures made to the retail investor are prescribed by CRS Form 17-page Instructions, including what must be disclosed − length, order, and even in some circumstances the wording.

It would be impossible to summarize the lengthy requirements here; suffice it to say there are eight items mandated for coverage:

Item 1: Introduction

Item 2: Relationships and Services

Item 3: Standard of Conduct

Item 4: Summary of Fees and Costs

Item 5: Comparisons to be provided by standalone investment advisers and standalone broker-dealers

Item 6: Conflicts of Interest

Item 7: Additional Information

Item 8: Key Questions to Ask

Also, there are 10 questions, “conversation starters” that the SEC requires be placed in a different font to distinguish them from other information. The Instructions direct that the questions that do not apply to a particular firm should not be used and additional questions that are frequently asked of a particular firm may be included, not to exceed 14 questions. If the Form CRS is presented electronically it may include hyperlinks to information described in the firm’s disclosures; therefore, it is actually larger in scope than it first appears.

The content of the disclosures must be filed on Form CRS through IARD by investment advisers and through EDGAR by broker-dealers. Firms also should note that Form CRS’s disclosure requirements are in addition to, not instead of, firms’ disclosure and reporting obligations under federal and state law and self-regulatory organizations’ rules and procedures.

FINRA reminds its Members of their obligation to meet the Form CRS delivery obligations and provides them with SEC Staff names and telephone numbers for assistance.

NOTE For a more complete discussion of the Form CRS guidance, read “Reg BI, Form CRS: The TARDIS of Disclosure Requirements. 

Read a summary of the Final Package in our article “The Final Reg BI Package: What to Know and What’s Next”.

The Robare Ruling Regarding “May” Disclosures and “Willfulness”

The SEC continues to intensify its focus on investment advisers’ disclosures on Form ADV, including issues such as revenue sharing arrangements. A recent D.C. Court of Appeals decision finding that the use of the word “may” in such a disclosure violated the Investment Advisers Act of 1940 could have significant ramifications for investment advisers and the SEC’s Division of Enforcement going forward.

Read the full blog post.

SEC Issues Risk Alert Regarding Reg S-P, Privacy, Safeguarding, and Registrant Compliance

The SEC’s OCIE recently issued a Risk Alert focusing on compliance issues related to Regulation S-P, the primary SEC rule governing compliance practices for privacy notices and safeguard policies for investment advisers and broker-dealers. The Risk Alert summarizes the OCIE’s findings from two-year’s worth of issues identified in deficiency letters to assist investment advisers and broker-dealers in adopting and implementing effective policies and procedures for safeguarding customer records and information pursuant to Regulation S-P.

In this alert, partner Jim Lundy outlines the Regulation S-P requirements, the OCIE’s Regulation S-P findings and key takeaways for SEC registrants.

The First SEC Share Class Selection Disclosure Settlements: What We Learned & What’s Next?

Jim Lundy and Ben McCulloch authored an article entitled “The First SEC Share Class Selection Disclosure Settlements: What We Learned & What’s Next?” for the Investment Adviser Association’s IAA Newsletter Compliance Corner. In the article, Jim and Ben discuss the first wave of settlements under the SEC’s SCSD Initiative as well as lessons learned. They also explore the agency’s ongoing efforts regarding the remaining participants, consequences for firms who opted not to self-report, and the Division of Enforcement’s continued scrutiny of revenue sharing arrangements, disclosures, and conflicts.

Read the full article.

*Originally published in the IAA Newsletter, April 2019

SEC Releases SCSD Self-Reporting Initiative Settlements

The SEC recently announced its first round of settlements with registered investment advisors (RIAs) who had self-reported pursuant to the agency’s Share Class Selection Disclosure Initiative (SCSD Initiative). Additional RIA settlements pursuant to the SCSD Initiative are expected, and RIAs who did not self-report face additional scrutiny from the Division of Enforcement. Industry reaction has involved frustration, but the SEC’s focus on RIA conflicts of interest, disclosures, and more recently revenue sharing is increasing.  Jim Lundy and Mary Hansen discuss these developments in this article, SEC Releases SCSD Self-Reporting Initiative Settlements.

Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report

On January 28, 2019, FINRA released its Regulatory Notice 19-04 announcing its 529 plan self-reporting initiative. This initiative is part of FINRA efforts to have broker-dealers promptly remedy potential supervisory and suitability violations related to recommendations of share classes for 529 plans. Continue reading “Alert: FINRA’s 529 Plan Share Class Initiative to Self-Report”

A Summary of FINRA’s 2018 Report on Examination Findings

Last week, FINRA issued its 2018 “Report on FINRA Examination Findings.”  This report tracks FINRA’s 2018 Priorities letter, which this blog has previously covered.  Putting its member firms on notice, FINRA advised that it issued the report as another resource for firms to “strengthen their compliance programs and supervisory controls.”  Not surprisingly, the first highlighted observation is “Suitability for Retail Customers.” Specifically, FINRA reported that:

Continue reading “A Summary of FINRA’s 2018 Report on Examination Findings”

SEC Proposes Regulations to Reform Retail Investment Standards

The SEC has issued proposed rules seeking to clarify how investment professionals advise retail investors. The three-part proposal includes a requirement that brokers act in a customer’s best interest; interpretive guidance on the fiduciary duty applicable to investment advisers; and Form CRS, which mandates certain disclosures by broker-dealers and investment advisers to their clients. The SEC’s release of these proposed rules and guidance is only the beginning of what will likely be an active 90-day comment period. As the SEC Commissioners did repeatedly, we encourage interested parties to participate in the SEC’s comment letter process.

An alert that I co-authored analyzes significant parts of the proposal and offers thoughts on what to look out for as the SEC continues to address these issues.

Click here to read the alert

For additional information and discussion on these SEC proposals, below is a link to Drinker Biddle’s Inside the Beltway from the day after the SEC’s open meeting in which partners Fred Reish, Brad Campbell and I discuss the SEC’s proposals and their anticipated impacts.

Inside the Beltway Recording