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Category Archives: FINRA Enforcement

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FINRA Reminds Members of Obligations in Offerings Subject to a Contingency

Posted in FINRA Enforcement

On February 8, 2016, FINRA released Regulatory Notice 16-08 relating to the contingency offering requirements of Rules 10b-9 and 15c2-4 under the Exchange Act. The Notice arises from FINRA’s review of various private placement offering documents in connection with FINRA Rule 5123’s filing requirement for certain offerings. FINRA observed that broker-dealers have not always complied… Read More

FINRA’s 2016 Priorities Letter: Objective and Subjective Issues

Posted in FINRA Enforcement

2016 has arrived and, with the new year, FINRA has published its agenda of key examination priorities. This year’s 13-page Regulatory and Examination Priorities Letter sets forth both long-standing and new items for firms to evaluate in preparing for an examination. Not surprisingly, the letter is broad, and covers a wide range of areas; we… Read More

FINRA’s Securities Helpline for Seniors™ Provides Guidance to Broker-Dealers

Posted in FINRA Enforcement

In April 2015, the Financial Industry Regulatory Authority (“FINRA”) launched its Securities Helpline for Seniors™ (the “Helpline”). The Helpline seeks to enhance investor protection by serving as a resource to seniors making investment decisions. FINRA reports that, since its launch, the Helpline has fielded over 2,500 calls. The Helpline has received calls from persons ranging… Read More

FINRA Proposes Rules to Help Avoid Financial Exploitation of Seniors

Posted in FINRA Enforcement

Avoiding financial exploitation of older investors has been on our regulators’ radar screens for several years. With new rules proposed in October 2015, FINRA seeks to make investing safer for seniors and other vulnerable adults. The proposed new rules would permit (but not require) a broker to place a temporary hold on a disbursement of… Read More

Sign of Things to Come?

Posted in FINRA Enforcement

FINRA recently filed a proposed rule change with the Securities and Exchange Commission in order to adopt the final rules relating to Title III crowdfunding “funding portals.”  This may signal that indeed the final crowdfunding rules may be released before year-end. The proposed rules were released at the end of 2013 in Regulatory Notice 13-34. … Read More

FINRA to Propose Action on Exploitation of Elderly Investors

Posted in FINRA Enforcement, Fund Regulation

On September 17, 2015, FINRA announced that it would propose rules to help member firms protect seniors and other vulnerable adults from financial exploitation. The proposal would create a safe harbor enabling broker-dealer firms to place a temporary hold on a disbursement of funds or securities, and to notify a customer’s trusted contact, when the… Read More

FINRA Sets Effective Dates for Research Report Conflicts Rules

Posted in Broker-Dealer Regulation, FINRA Enforcement

FINRA rules addressing conflicts of interest relating to the publication of equity research reports become effective on September 25, 2015, or December 24, 2015. Corresponding rules for debt research reports become effective on February 22, 2016. Rule 2241 is designed to “foster objectivity and transparency” in equity research and provide investors with useful information with… Read More

Show Us the Money: FINRA Initiates Sweep Relating to Compensation Practices

Posted in Broker-Dealer Regulation, FINRA Enforcement

FINRA has made no secret of its interest in broker compensation, and the potential conflicts of interest that can be generated by some types of compensation practices.  FINRA discussed these issues in its 2015 annual priorities letter, as well as in its earlier 2013 report on conflicts of interest.  These conflicts are also relevant to… Read More

FINRA’s Revised Sanction Guidelines: Higher, Tougher, Fairer?

Posted in Broker-Dealer Regulation, FINRA Enforcement

FINRA’s newly revised Sanction Guidelines, effective immediately, signal that the upward trend in sanctions against broker-dealers is likely to continue. The Sanction Guidelines, which establish the range of sanctions that FINRA may impose in formal disciplinary proceedings, affect several specific types of violations, as well as the principles behind levying sanctions and the overall levels… Read More

FINRA is Apparently Holding its CARDS

Posted in Cybersecurity/Privacy, Enforcement, FINRA Enforcement

Broker-dealers appear to have succeeded, at least for now, in beating back FINRA’s proposal to capture extensive amounts of data through electronic means. For over a year, FINRA has been pushing its Comprehensive Automated Risk Data System (CARDS), which would require clearing firms (on behalf of introducing firms) and self-clearing firms to regularly submit to… Read More

FINRA Issues its Cybersecurity Report, Providing Tools and Encouragement to Broker-Dealers

Posted in Broker-Dealer Regulation, Cybersecurity/Privacy, Enforcement, FINRA Enforcement

FINRA recently issued a Report on Cybersecurity Practices (“Report”), growing out of its targeted examination of firms last year.  To issue the Report, FINRA gave careful consideration to the needs of many broker-dealers for information and the tools to combat cyber intrusions.  The Report is comprehensive, and it doesn’t shy away from delving into technical… Read More

Heightened Scrutiny of Brokers – SEC Approves FINRA’s Proposed Background Check Rule

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

In recent years, questions have been raised in many quarters about how brokers with questionable backgrounds have been able to move among firms and remain in the industry. FINRA has responded by enhancing a broker-dealer’s obligations for reviewing the backgrounds of its newly hired brokers. The SEC recently approved proposed FINRA Rule 3110(e), which requires… Read More

FINRA Issues a Packed Priorities Letter for 2015

Posted in Broker-Dealer Regulation, Cybersecurity/Privacy, FINRA Enforcement

FINRA opened 2015 with a lengthy and ambitious agenda of regulatory priorities. This year’s Regulatory and Examination Priorities Letter is much longer than those issued the last two years, and repeats many of those years’ priorities, while adding additional products and practices. Amidst this smorgasbord of priorities, several are highlighted in FINRA’s accompanying press release,… Read More

FINRA Sanctions Member Firm for Failure to Deliver ETF Prospectuses

Posted in Enforcement, FINRA Enforcement

FINRA recently sanctioned a broker-dealer (the “Firm”) for failure to deliver prospectuses in connection with its sale of ETFs.  FINRA also found that the Firm failed to implement a supervisory system reasonably designed to achieve compliance with securities laws and regulations governing ETF prospectus delivery.  The Firm was censured and agreed to a fine of… Read More

Heightened Supervision of Branch Offices — Tips for the Coming Year

Posted in FINRA Enforcement, SEC Enforcement

In recent years, the Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) have heightened their expectations of what constitutes a “comprehensive” branch self-inspection program. Firms that fail to meet these expectations might receive a visit — and disciplinary action — from either FINRA or the SEC’s Office of Compliance Inspections and Examinations… Read More

Article Provides the State of Regulation as to Insider Trading Compliance at Broker-Dealers

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

Insider trading is back in the spotlight.  The SEC and FINRA are combatting insider trading on many fronts, including through the enforcement of requirements that broker-dealers implement procedures for preventing and detecting insider trading.  Recent statements from the agencies and enforcement actions illustrate that, while individual bad actors are still a clear target, broker-dealers that… Read More

The Results Are In: Investors Favor Additional Regulatory Protection

Posted in Broker-Dealer Regulation, FINRA Enforcement

On November 6, 2014, FINRA released results from a survey of U.S. investors measuring the demand for additional regulatory protections. The survey polled 1,000 adults and revealed that an overwhelming majority felt that it was important to protect investors and police the markets.  Indeed, 74 percent polled would support additional regulatory protections to safeguard against broker-dealer… Read More

Additional Fees on Securities Transactions – FINRA Sees No Justification

Posted in Broker-Dealer Regulation, FINRA Enforcement

In an area of broker-dealer practices with relatively little guidance—the appropriate level of commissions or mark ups on securities trades—FINRA recently brought another in a series of cases that provides insight into the regulator’s view on additional transaction-based fees.  In this particular case, FINRA found that a broker-dealer characterized a $60.50 charge on its customer… Read More

VA Switches: FINRA Disciplinary Action Reminds Firms About the Need for Adequate Supervisory Procedures

Posted in Broker-Dealer Regulation, FINRA Enforcement

In a case involving unsuitable variable annuity (VA) transactions, FINRA found that having good procedures and discovering improper conduct are not enough.  A member firm must also ensure that it has adequate supervisory systems in place to ensure that its procedures are properly implemented.  In this case, two of the firm’s registered representatives—who were independent… Read More

FINRA Announces and Publishes Its Sweep of Order Routing Practices

Posted in Broker-Dealer Regulation, FINRA Enforcement

FINRA announced this week that it is conducting a review of its member firms’ order-routing processes and procedures and the execution quality of customer orders in exchange-listed stocks.    We previously reported in this blog that an academic paper on this subject had gotten the attention of FINRA and the SEC.  That article, by professors at… Read More

SEC Decision Regarding TIC Advertisements Offers Broader Lessons About Providing Fair and Balanced Disclosures

Posted in Broker-Dealer Regulation, FINRA Enforcement

Earlier this year, the SEC found that CapWest Securities, Inc., a defunct broker-dealer, had failed to comply with advertising rules in promoting investments that use Section 1031 of the Internal Revenue Code (“1031 Exchanges”) or tenant-in-common investments (TICs).  The SEC’s decision, recently reported by FINRA, upheld FINRA’s decision and sustained the sanctions of a censure… Read More

Pre-IPO Selling Procedures Need to Be Adequately Supervised, According to FINRA

Posted in Broker-Dealer Regulation, FINRA Enforcement

Broker-dealers selling interests in IPOs need to have adequate supervisory systems to ensure that registered representatives do not make actual sales before the securities are registered, according to a settlement of a formal disciplinary proceeding announced by FINRA yesterday. In this particular case, FINRA found that for a little  more than a year, a firm… Read More

FINRA Board of Governors Invalidates Class Action Waivers in Customer Account Agreements

Posted in FINRA Enforcement, Fund Regulation

In an April 24th ruling that will have widespread impact among financial institutions, the FINRA Board of Governors held that a broker-dealer violated FINRA rules by including a mandatory class action waiver in its customer account agreements. The Board decision reverses in part and affirms in part an earlier decision by a FINRA Hearing Panel… Read More