FINRA Archives - Page 2 of 5 - Broker-Dealer Regulation & Litigation Insights

Category: FINRA

And Now for the SEC’s First Substantive Reg BI Action

We have made it a point previously in this blog to track developments of the SEC’s Regulation Best Interest (Reg BI), even speculating more aggressive enforcement actions could be coming due to certain Reg BI deficiency letters sent to firms late last year. Since Reg BI went into effect in June 2020, however, many have waited with bated breath to see what enforcement of the regulation would look like in practice. While the SEC has pursued some cases regarding firms missing deadlines and omitting certain information in disclosure documents, it had taken no further action until June. On June 15, 2022 the SEC finally took its first substantive Reg BI action by filing a civil regulatory complaint in the U.S. District Court for the Central District of California against Western International Securities, Inc. and five of its brokers for allegedly selling a risky debt security, known as corporate L Bonds, to its retail customers. The Complaint invokes Section 15l-1(a) of the Securities and Exchange Act of 1934 — Regulation Best Interest — and seeks to enjoin the Defendants from the acts, practices and courses of business described in the Complaint.

Continue reading “And Now for the SEC’s First Substantive Reg BI Action”

Having a Senior Moment

In connection with the 2022 SIFMA C&L Seminar, the Best Interest Compliance Team submitted a white paper entitled “Having a Senior Moment: Recent Legislation and Rules to Protect Seniors from Financial Exploitation,” that was made available to conference attendees on a mobile app.

As its title suggests, our paper covers recent laws and regulations passed to protect senior investors. We specifically cover: (1) the Senior Safe Act, a law passed to provide immunity to financial institutions/advisors who disclose financial exploitations; (2) FINRA Rule 2165, which allows FINRA members to place temporary holds on the disbursement of funds or securities; (3) an SEC No Action Letter relating to FINRA Rule 2165; (4) FINRA Rule 4512, which requires member firms to make reasonable efforts to obtain a trusted contact person on customers’ accounts; (5) FINRA Rule 3241 which attempts to minimize conflicts where a registered person is named as a beneficiary or executor to their customer’s estate; and (6) “Report and Hold Statutes” that have been passed in a number of states and that require/encourage broker-dealers to report any suspicions of financial abuse. As part of our white paper, we also prepared a 50-state survey of the states that have passed Report and Hold Statutes.

Continue reading “Having a Senior Moment”

Exam Time: FINRA Releases its 2022 Report on its Examination and Risk Monitoring Program

A common phrase to abide by in the New Year is “out with the old, in with the new.” FINRA’s 2022 Report on its Examination and Risk Monitoring Program (the “Report”), however, contains a combination of old and new priorities. We previously previewed the Report.

Old priorities, once again included, are: Anti-Money Laundering, Reg BI and Form CRS, and cybersecurity.

New risk areas include: firm short positions and fails-to-receive in municipal securities; trusted contact persons; funding portals and crowdfunding offerings, disclosure of routing information; and portfolio margin and intraday trading.

Continue reading “Exam Time: FINRA Releases its 2022 Report on its Examination and Risk Monitoring Program”

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.

Continue reading “FINRA’s Focus on Variable Annuity Switches Continues”

SEC Joint Statement on Form CRS and New FAQs & Upcoming Roundtable

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).

Continue reading “SEC Joint Statement on Form CRS and New FAQs & Upcoming Roundtable”

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.

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:

Continue reading “Wait Just a Minute: FINRA Loosens the Screws on Proposed Expungement Restrictions”

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

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.

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”