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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On October 8, 2020, the U.S. Securities and Exchange Commission (SEC) released a joint statement by SEC Chairman Jay Clayton and the SEC’s directors of the Division of Investment Management and the Division of Trading and Markets “Regarding New FAQs for Form CRS” (CRS FAQ Joint Statement). The CRS FAQ Joint Statement offers guidance to both broker-dealers and registered investment advisers (collectively, firms). The focus of this guidance addressed Form CRS disclosures regarding firm or financial professional disciplinary histories. Along with the CRS FAQ Joint Statement, the SEC modified and released its “Frequently Asked Questions on Form CRS” (Form CRS FAQs).
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.
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:
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.
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.
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.
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:
In Parts 1 and 2 of this post, we talked about the current and proposed rules applicable to rollover recommendations by broker-dealers and RIAs. Part 1 discussed the DOL and FINRA rules that apply now. In Part 2, we explained the SEC proposals. In this post, we talk about how to make a compliant rollover recommendation, regardless of which set of rules applies.
(“Rollover recommendation” refers to advice to a retirement plan participant to take a distribution of his or her account and roll it over to an IRA that is being advised by the broker-dealer or RIA.)