Author: Edward Scarillo

View the full bio for Edward Scarillo at the Drinker Biddle website.

Posts by Edward Scarillo:


SLOW Your Roll: DOL Temporarily Halts Enforcement of Compliance with PTE and ERISA Fiduciary Obligations for Rollover Advice

Benjamin Franklin once said “don’t put off until tomorrow what you can do today.” While that is always prudent advice, the Department of Labor (DOL) believes it’s best to grant an extension to investment advisors and broker-dealers to comply with the full terms of the Prohibited Transaction Exemption 2020-02 (PTE 2020-02), beyond the current December 21, 2021, deadline. A previous blog post covered the scope of the PTE and provided guidance on compliance.

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Risky Business: SEC Risk Alert Highlights Broker-Dealers’ Anti-Money Laundering Miscues and Encourages Firms to Beef Up Protection

Ben Franklin once said “by failing to prepare, you prepare to fail.” Based on the SEC’s latest risk alert concerning broker-dealers’ anti-money laundering (AML) compliance (or lack thereof), some firms would be well served to heed Mr. Franklin’s advice.

The SEC specifically seeks to examine broker-dealers’ compliance with the various regulations and laws governing firms’ AML obligations. The risk alert highlights the SEC’s observations relating to firms’ deficiencies concerning (a) AML policies and procedures and internal controls; and (b) suspicious activity reporting (SAR). The SEC’s emphasis on AML should come as no surprise, as the SEC has previously included it as an exam priority. FINRA has additionally provided broker dealers with extensive AML guidance.

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FINRA’s Focus on Variable Annuity Switches Continues

On January 8, 2021, without admitting or denying the findings, VALIC Financial Advisors, Inc., (VALIC) entered into a settlement with FINRA Enforcement, through an Acceptance, Waiver and Consent (AWC) where the factual allegation was that between January 1, 2017, and October 31, 2018, the broker-dealer failed to “establish a reasonably designed system and written supervisory procedures for the surveillance of rates of [Variable Annuities] exchanges and for corrective action in the case of inappropriate exchanges, in violation of FINRA Rules 2330(d), 3110, and 2010.” VALIC agreed to a censure and a $350,000 fine. See VALIC Financial Advisors, Inc. AWC No. 2018060548501.

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Reg BI Is Here. What’s the SEC Doing Now?

Reg BI has passed its compliance date of June 30, 2020. The SEC and FINRA have commenced examinations to test brokerage firms’ good faith compliance with Reg BI and Form CRS disclosure satisfaction. Our article “Have No Fear, Reg BI Is Finally Here” provides a brief overview of Reg BI and deciphers its implications for brokers and broker-dealers. It also provides an overview of a recent Risk Alert drafted by the SEC’s Office of Compliance Inspections and Examinations (OCIE), and examines the SEC’s and FINRA’s review of Reg BI compliance.

Read the article.

States Enact Good Samaritan Broker Laws

On January 22, 2016, the members of the North American Securities Administrators Association (NASAA) released the Senior Model Act.  It was developed and approved to serve as a model statute for states to adopt to target financial exploitation of seniors and to shield from liability brokers and brokerage firms who acted to assist those seniors. The Senior Model Act comports with a multitude of legislation and regulatory protection for seniors. Broadly stated, the Senior Model Act proposes language for legislation that would require “qualified individuals” such as broker-dealers and investment advisers, and those who work in a supervisory or legal capacity for them, to report any suspicions of financial elder abuse. The Senior Model Act proposes the protection of “eligible adults,” defined as those over the age of 65.

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Wait Just a Minute: FINRA Loosens the Screws on Proposed Expungement Restrictions

Brokers seeking to expunge customer complaints from their records can sleep a bit easier. Richard Berry, head of FINRA’s Office of Dispute Resolution (ODR), stated last week that FINRA intends to tweak some restrictions that it had previously proposed on brokers’ abilities to seek expungement of customer complaints.

Notably, in late 2017 FINRA proposed a number of changes to the expungement process, including:

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Further Protection for Good Samaritan Brokers: States and FINRA Continue the Push to Protect Senior Investors by Protecting Brokers Who Do the Right Thing

Following the passage of last year’s federal Senior Safe Act, several states moved to beef up protections for senior investors by permitting brokers to act without liability.
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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

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.

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Waive or Pay: FINRA Reaches Final Settlements in Its Mutual Fund Waiver Initiative

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.

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An Imperfect Storm(s): FINRA Bars Compliance Personnel for Falsifying Branch Audit Data

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.

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