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Category Archives: Broker-Dealer Regulation

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Self-Regulatory Organizations and the Constitutional Privilege Against Self-Incrimination

Posted in Broker-Dealer Regulation

How do self-regulatory organizations, such as ones acting for the futures industry and broker-dealers, steer clear of being deemed a government actor for purposes of the Constitution’s Fifth Amendment privilege against self-incrimination, while at the same time coordinating with a governmental authority enough to avoid duplication or disruption?  When can respondents in such cases successfully… Read More

New SEC Privacy and Cybersecurity Risk Alert Tells Broker Dealers and Investment Advisers Common Deficiencies to Avoid

Posted in Broker-Dealer Regulation, Cybersecurity/Privacy

The SEC’s new Risk Alert provides valuable insight as to what the OCIE wants to see broker dealers and investment advisers accomplish with their privacy notices and their cybersecurity policies and procedures. The SEC wants this written documentation to be comprehensive, to accurately reflect the registrant’s practices, and to be implemented effectively throughout their business…. Read More

FINRA’s 2019 Risk Monitoring and Examination Priorities Letter Highlights Broker-Dealer Online Distribution Platform Activities

Posted in Broker-Dealer Regulation, Enforcement, FINRA Enforcement

FINRA recently published its 2019 Risk Monitoring and Examination Priorities Letter (“Priorities Letter”) highlighting topics upon which FINRA will focus in the coming year. Unlike letters in prior years, the Priorities Letter focuses primarily on areas that FINRA considers to be material new priorities. Of particular interest to the growing number of companies providing financial… Read More

OCIE Publishes 2019 Enforcement Priorities

Posted in Broker-Dealer Regulation, Fund Regulation, Investment Adviser Regulation, SEC Enforcement

The SEC’s Office of Compliance Inspections and Examinations (OCIE) published its 2019 examination priorities on December 20, 2018. Although OCIE’s published priorities “provide a preview of key areas where OCIE intends to focus its limited resources,” registrants should be aware that OCIE will proactively seek insight into evolving markets “including changes in risks to markets and… Read More

Broker-Dealer Settles Record Keeping Charges for $1.25 Million

Posted in Broker-Dealer Regulation, SEC Enforcement

On July 17, 2018, the SEC announced that it had entered into a settlement with a broker-dealer charged with failure to preserve certain records and inaccurately recording travel, entertainment, and other expenses. The broker-dealer agreed to pay a $1.25 million penalty to settle the charges. The SEC found that after receiving document requests from the SEC’s… Read More

Massachusetts Takes on Risky Broker-Dealers That Offer Private Placements

Posted in Broker-Dealer Regulation

On July 2, 2018, the State of Massachusetts announced that it was investigating 10 broker-dealers that have 15% or more of their agents with current disciplinary incidents and that offer private placements to individual investors. According to the announcement, the investigation arises in large measure due to a recent Wall Street Journal investigation into these… Read More

Retail Client Confusion Regarding Broker-Dealers and Investment Advisers: Call Me by Your Name

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

In a speech on May 2, 2018 regarding the SEC’s recent proposed broker-dealer standard of conduct, Jay Clayton, Chair of the Securities and Exchange Commission (SEC), commented as follows on retail investor confusion over whether their financial service providers are investment advisers or broker-dealers: “‘Financial advisor,’ ‘financial consultant,’‘wealth manager.’  Your financial professional may have any… Read More

SEC Proposes Simplified Relationship Summary for Broker-Dealers and Investment Advisers to Use with Retail Investors

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

In the third release comprising part of the package of proposed rules and forms related to broker-dealers’ and investment advisers’ standards of conduct, the SEC proposed a new disclosure document to be used by registered broker-dealers, registered investment advisers, and dual registrants. The new client relationship summary, or “Form CRS,” would provide certain basic disclosures… Read More

SEC Proposes a New Standard of Care for Broker-Dealers: Regulation Best Interest

Posted in Broker-Dealer Regulation

On April 18, 2018, the SEC introduced new Regulation Best Interest for broker-dealers and their associated persons when dealing with retail customers. This alert provides background of broker-dealer regulation, an overview of Regulation Best Interest, and our take on what this means for broker-dealers going forward. This alert is one in a series of Client… Read More

FINRA Proposes Amendments to Quantitative Suitability Rules

Posted in Broker-Dealer Regulation

On April 20, 2018, FINRA issued proposed amendments to Rule 2111’s “quantitative suitability” provisions. According to FINRA, the proposal is designed to more effectively counter the problem of “churning,” or excessive trading in customer accounts. As discussed below, the proposal arrives shortly after the SEC’s proposal of “Regulation BI” and illustrates how these two regulators… Read More

Broker-Dealer Standard of Care: The SEC Enters the Fray

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

At an open meeting held earlier today, the SEC voted 4-1 to propose a package of rules, forms, and guidance designed to define a new “best interest” standard of care for broker-dealers dealing with retail investors. The proposal would also require disclosure designed to help retail investors understand their relationship with their investment professionals, and… Read More

FINRA updates its Frequently Asked Questions on new mark-up and mark-down disclosure rules for transactions in fixed income securities

Posted in Broker-Dealer Regulation, Enforcement, FINRA Enforcement

On March 19, 2018, FINRA updated its guidance on its recent amendments to Rule 2232. The new requirements, which are currently scheduled to take effect on May 14, 2018, apply to transactions with retail customers (not institutional accounts, as defined in Rule 4512(c)[1]) in corporate and agency debt securities. Beginning on the effective date, FINRA… Read More

First State Charges Broker-Dealer in Connection with Violations of DOL Fiduciary Rule

Posted in Broker-Dealer Regulation, Enforcement

On February 15, 2018, the Enforcement Section of the Massachusetts Securities Division (the “Division”) of the Office of the Secretary of the Commonwealth charged a registered broker-dealer (the “Broker-Dealer”) that operated in Massachusetts with violating its own internal policies designed to ensure compliance with the U.S. Department of Labor’s (the “DOL”) Fiduciary Rule. The DOL… Read More

OCIE Announces Its 2018 Examination Priorities

Posted in Broker-Dealer Regulation, Fund Regulation, Investment Adviser Regulation

The SEC’s Office of Compliance Inspections and Examinations (OCIE) has published its 2018 examination priorities. Not surprisingly, it will continue to focus on the protection of retail investors and ensuring that registrants are appropriately disclosing or resolving conflicts of interest. In addition, OCIE will pay particular attention to developments in cryptocurrencies and initial coin offerings (ICOs). OCIE… Read More

2018: Business As (Un)usual – European Financial & Regulatory Developments into 2018

Posted in Broker-Dealer Regulation, Fund Regulation, Investment Adviser Regulation, Research

2017 in the UK and the rest of Europe seems to have been primarily a year devoted to implementation – both of political decisions already made and of legislation that had already been enacted.  On the political front, Brexit continued to dominate many conversations around EU financial services.  Theories circulated that EU decisions on various… Read More

10th Annual Structured Products Association Legal, Regulatory & Compliance Update

Posted in Broker-Dealer Regulation, Events, Investment Adviser Regulation

Monday, February 5, 2018 6:00 p.m. – 8:30 p.m. Morrison & Foerster LLP 250 W 55th Street New York, NY 10019 The Structured Products Association and Morrison & Foerster are pleased to host this annual Legal, Regulatory & Compliance Update for friends, clients and members on February 5, 2018. Join us for a timely presentation… Read More

FINRA Publishes FAQs on New Measures to Prevent the Financial Exploitation of Seniors

Posted in Broker-Dealer Regulation, FINRA Enforcement

In January 2018, FINRA issued guidance on the provisions of Rule 2165 and the amendments to Rule 4512, which were approved in February 2017. The new requirements are aimed at preventing the financial exploitation of seniors, and are scheduled to take effect on February 5, 2018. The new FAQs principally reiterate prior guidance clarifying the… Read More

Understanding the Standard of Care for Broker-Dealers and the Department of Labor’s Fiduciary Rule

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

Until recently, broker-dealers operating in the United States weren’t subject to a fiduciary standard when dealing with their retail clients. The passage of the Dodd-Frank Act in 2010 included a provision enabling the Securities and Exchange Commission to consider and propose a higher standard of care for broker-dealers – something which it has not yet… Read More

FINRA Provides Preview of 2018 Rulemaking Activity

Posted in Broker-Dealer Regulation

In a December 20, 2017 press release, FINRA announced that, at its final Board of Governors meeting for 2017, it approved the filing of several proposed amendments to its rules. The rule proposals will include the following: Capital Formation: the proposed rule amendments that would remove certain potential impediments to capital formation; in particular, Rules… Read More

FINRA Issues Report on Its Examination Findings

Posted in Anti-Money Laundering, Broker-Dealer Regulation, FINRA Enforcement

In December 2017, FINRA issued a report highlighting several key findings from its recent examinations of broker-dealer members.  The report is available here. The report focuses on several observations from recent examinations that FINRA believed would be worth highlighting to members.  Of course, the report cannot list all of FINRA’s concerns; however, FINRA selected these… Read More

SEC Staff Solves Section 28(e)-MiFID II Compliance Conundrum—For Now

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

In a series of three “no-action” letters, the staff of the Securities and Exchange Commission (SEC) published guidance to address concerns by U.S. broker-dealers and investment advisers about how to comply with Markets in Financial Instruments Directive (MiFID II) rules that limit the use of soft dollars.  Among other things, the Division of Investment Management… Read More

SEC Chairman Clayton Addresses Senate Committee

Posted in Broker-Dealer Regulation, Investment Adviser Regulation, SEC Enforcement

On September 26, 2017, SEC Chairman Jay Clayton delivered to the U.S. Senate Committee on Banking, Housing and Urban Affairs his first testimony as Chairman.  A copy of his prepared remarks may be found here. Mr. Clayton’s testimony was fairly broad in scope, covering a variety of issues of concern to the Committee, from the… Read More

The Fiduciary Rule Poll

Posted in Broker-Dealer Regulation, Investment Adviser Regulation

The US Department of Labor’s (DOL) fiduciary standard rule has been befuddling the financial services industry for the past seven years. In its simplest form, it increases accountability for the brokers, planners and insurance agents that handle US retirement accounts. It introduces measures to ensure they act in the best interest of their clients rather… Read More

NASAA Survey Finds Seniors Are Most Vulnerable to Financial Fraud

Posted in Broker-Dealer Regulation, FINRA Enforcement, SEC Enforcement

On August 21, 2017, the North American Securities Administrators Association (“NASAA”) released a survey on senior citizens and financial exploitation. The survey of the state securities regulators highlighted, among other things, the need for the securities regulators to take a stronger role in prevention and detection. The survey was conducted internally among NASAA’s membership of… Read More