As the countdown to the June 30, 2020, date for compliance with Reg BI inches forward, FINRA and the SEC are providing a potpourri of support and information to help firms ensure compliance.
FINRA EFFORTS: FINRA’s northeast regional director announced in late October that FINRA will perform “preparedness reviews” of broker-dealers to determine firms’ readiness to comply with Reg BI. At its November Senior Investor Conference, FINRA President and CEO Robert Cook confirmed FINRA’s intention to perform these “stress tests.” . FINRA has emphasized that its intent is not to be punitive and fine firms for compliance violations. Rather, FINRA insists its primary goal is to assist firms in successfully implementing the nearly 1,000 pages of Reg BI’s regulations.
Continue reading “Reg BI Information Overload: The Countdown to June 2020 Continues with Planned Reg BI Stress Tests, Checklists and FAQS Courtesy of FINRA and the SEC”
Justice Brandeis once famously said that sunlight is the best disinfectant. Perhaps, but in FINRA’s purview, settlements might be better. Along these lines, FINRA recently announced that it has reached final settlements in its nearly four-year initiative to obtain restitution from member firms that allegedly failed to waive mutual fund sales charges. These firms also allegedly failed to properly supervise the sale of mutual funds that offer sales charge waivers. The settlements were substantial: 56 member firms agreed to pay $89 million in restitution for 110,000 charitable and retirement accounts.
Continue reading “Waive or Pay: FINRA Reaches Final Settlements in Its Mutual Fund Waiver Initiative”
It often is said that “it’s not the crime, but the cover-up” that is the most damaging to someone alleged to have committed misconduct. In a recent FINRA enforcement action, however, the cover-up was the crime. On July 3, 2019, FINRA barred Vincent J. Storms, a now-former Raymond James & Associates (RJA) compliance associate, for particularly egregious falsifications of RJA’s branch audit data that violated FINRA Rules 2010 and 4511.
At RJA, Mr. Storms was responsible for auditing branch offices and performing follow-up work resulting from the audits. As part of the audits, RJA sent an email to each registered representative requesting that they complete a questionnaire that gathered information such as whether the representative had any undisclosed outside business activities or undisclosed securities accounts at other broker-dealers, and whether the branch used third-party vendors to store data.
Continue reading “An Imperfect Storm(s): FINRA Bars Compliance Personnel for Falsifying Branch Audit Data”
On the heels of the SEC’s recent approval of the “Reg BI Package,” on June 26, 2019 the U.S. House of Representatives passed a bill that would prevent enforcement of Reg BI. Specifically, Rep. Maxine Waters included a last minute amendment to an appropriations bill that would prevent any funds from being used to “implement, administer [or] enforce” Reg BI.
While the bill was comfortably passed in the House, its prospects to pass in the Senate seem unlikely. Senators will have the opportunity to introduce their own version, which will then need to be reconciled with the House’s. As always, we will continue to closely monitor any developments concerning Reg BI, and will publish any updates.
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”
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”
It was once said that “bureaucracy defends the status quo long past the time when the quo has lost its status.” FINRA, apparently a proponent of this idea, recently completed an overhaul of its Department of Enforcement’s structure in an attempt to create a “unified enforcement function.” Specifically, Susan Schroeder, FINRA’s head of enforcement, will head a single enforcement team charged with making decisions on investigations and penalties.
Prior to this consolidation, enforcement was split into two units. One was tasked with handling disciplinary matters concerning trading, and a second unit handled cases referred from FINRA’s other divisions, such as the Office of Fraud Detection.
The ultimate goal of this consolidation is “to facilitate more consistent decision-making and outcomes,” as well as “to better target developing issues that can harm investors and market integrity, and ensure a uniform approach to charging and sanctions.” Additionally, independent commentators believe that FINRA’s new enforcement structure might make investigations shorter and increase transparency.
To savvy observers this consolidation will not come as a surprise. It is the result of FINRA 360, “FINRA’s ongoing comprehensive and improvement initiative” announced July 2017. Consolidation of enforcement functions was listed, among others, as a way to make FINRA a “more effective, efficient regulator.” Other FINRA 360 priorities include: Reporting on FINRA examination findings, reviewing engagement initiatives, and retrospective rule review.
It is unclear whether FINRA’s consolidation will achieve its goals. FINRA’s efforts, however, serve as a welcome sign to firms and commentators, as FINRA appears genuinely interested in improving its overall efficacy and efficiency.
On May 24, 2018, President Trump signed into law the Senior Safe Act, which is aimed at curbing elder financial abuse. The Senior Safe Act is the latest effort to protect senior investors, as both FINRA and the SEC included protecting senior investors among their 2018 priorities. This blog has previously covered, at length, the SEC and FINRA 2018 exam priorities. Elder protection was also one of the SEC’s 2017 priorities and has been a FINRA priority since 2016.
Continue reading “Make Senior Investing Safe Again? President Trump Signs Into Law the Senior Safe Act in an Attempt to Curb Financial Abuse of Seniors”
FINRA recently posted two regulatory notices aiming to further rein in so called “high risk brokers,” as well as the firms that choose to employ them. The first, Regulatory Notice 18-15, is aimed squarely at firms that employ brokers with a history of previous misconduct. It advises firms on (1) Identifying Individuals for Heightened Security and (2) Developing and Implementing a Heightened Supervision Plan for such individuals. The second, Regulatory Notice 18-16, seeks comment on a variety of FINRA rule amendments relating to “high-risk brokers and the firms that employ them.” We discuss the notices in further detail below.
Continue reading “Bad Brokers Beware: FINRA Aims to Further Tighten the Screws on Ill-Behaved Brokers and the Firms That Employ Them”
“There is a Chinese curse which says ‘May he live in interesting times.’ Like it or not, we live in interesting times.” (Robert F. Kennedy – June 6, 1966, Speech at University of Cape Town)
May 7, 2018, has come and gone and we have not yet seen a mandate from the Fifth Circuit Court of Appeals in the Chamber of Commerce of United States of Am. v. United States Dep’t of Labor, 885 F.3d 360 (5th Cir. 2018) litigation, which is the final step necessary to effectuate that court’s order vacating the DOL Fiduciary Duty Rule. Presumably that mandate is imminent; however, we do not know for sure. We do know, however, that the DOL will not be filing a motion for rehearing to the Fifth Circuit on its decision, as that deadline has passed. We assume there will not be a DOL writ of certiorari to the United States Supreme Court seeking to challenge the Fifth Circuit Court’s opinion, but we do not actually know that either. Continue reading “FINRA Moves to Amend the Suitability Standard in Lockstep with the SEC’s Efforts”