Eversheds Sutherland (US) LLP has completed its annual study of the disciplinary actions reported by FINRA in 2016. Key takeaways:
- In 2016, the amount of fines ordered by FINRA shattered its previous record set in 2014
- While the number of cases reported was on par with prior years, the amount of restitution declined significantly from 2015’s record total
- Top enforcement issues and emerging trends for FINRA
View the results here
Additional contributor to this post:
Brian L. Rubin, firstname.lastname@example.org
In a recent Risk Alert, the staff of the Office of Compliance Examinations and Inspections (“OCIE”) of the Securities and Exchange Commission (“SEC”) observed that one of the most frequent deficiencies identified in OCIE examinations was the failure of investment advisers to recognize that they might be deemed to have custody of client assets for purposes of Rule 206(4)-2
(“Custody Rule”) under the Investment Advisers Act of 1940 (“Advisers Act”). On February 21, the staff of the SEC’s Division of Investment Management provided additional guidance under the Custody Rule that addressed three situations where there have been significant questions as to whether an investment adviser has custody of client assets:
- when the adviser has limited authority to transfer client assets pursuant to a standing letter of instruction or other similar asset transfer authorization arrangement (“SLOA”) established by a client with a qualified custodian;
- when an agreement between the client and its custodian appears to provide the adviser with access to client assets—even if the investment adviser is not a party to such agreement; and
- when the adviser has the authority to move money between the client’s own accounts (“first-person transfers”).
Read More Here.
Additional contributor to this post:
Gregory T. Larkin, email@example.com
The SEC on February 13, 2017, issued a cease and desist order (Order) and imposed a $100,000 civil penalty against broker-dealer Sidoti & Company, LLC (Broker-Dealer), to settle charges for “failure … to establish, maintain, and enforce written policies and procedures to prevent the misuse of material nonpublic information (‘MNPI’)” by the Broker-Dealer in connection with the trading of a hedge fund (Fund) managed by the Broker-Dealer’s affiliated investment adviser (Adviser). The Broker-Dealer, the Fund and the Adviser were all controlled, through a holding company, by the Broker-Dealer’s founder and CEO, who also headed the Broker-Dealer’s research and investment banking operations and directed trading for the Fund. In response to concerns raised in an SEC examination, the Broker-Dealer implemented written policies intended to prevent the misuse of MNPI by its associated persons in connection with the Fund’s operations. While the new policies attempted to address the CEO’s conflicting roles, the procedures did not ensure enforcement of the new information barriers, and therefore resulted in said Order. The Order is a reminder to registered broker-dealers – as well as registered investment advisers – to consider their business models and organizational structures when designing and implementing information barriers and other procedures to prevent misuse of MNPI, and to take into account activities and responsibilities with respect to affiliated entities, although, notably, the SEC did not charge affiliates – or individuals – in this administrative proceeding. Read More Here
Additional contributors to this post:
Elliott R. Curzon, firstname.lastname@example.org
David A. Vaughan, email@example.com
As an outgrowth of FINRA’s retrospective rule review of its advertising rules, in Regulatory Notice 17-06 FINRA solicits comments on proposed amendments to FINRA Rule 2210 (Communications with the Public) to create an exception to the rule’s prohibition on projecting performance. The exception would permit a firm to distribute a customized hypothetical investment planning illustration that includes the projected performance of an asset allocation or other investment strategy subject to specified conditions. Comments on the proposal are due to FINRA by March 27th. The proposed exception would provide flexibility for depicting hypothetical performance of an asset allocation model or other investment strategy provided the projected performance does not depict any individual security.
Investment advisers are reminded to review their filing obligations under the TIC Form SHC as reporting on this 5-year benchmark survey is due on March 3, 2017. The instructions for Form SHC are available here, FAQ may be found here and key issues for reporters are available here.
Continue reading TIC Form SHC 5-Year Benchmark Survey of U.S. Ownership of Foreign Securities: Due March 3, 2017