On November 2, 2016, FINRA announced fines against eight firms, totaling $6.2 million, related to supervisory failures for sales of L-share variable annuities. FINRA has been focused on L-share variable annuity sales, because they are often sold with long-term minimum income riders, which may be incompatible with the higher up-front fees and shorter surrender periods normally associated with the L-share class. Rather than claim that these products were unsuitable for certain investors, FINRA’s enforcement action alleges that firms did not have adequate supervisory systems in place to monitor the L-share variable annuity sales. Moreover, many of the eight fined firms did not have supervisory systems reasonably designed to identify “red flags” related to the L-share variable annuity sales (e.g., the “red flag” of L-shares sold to senior investors with long-term riders).
Industry experts anticipate further FINRA enforcement actions related to the sale of L-share variable annuities, and many firms have gradually been eliminating L-share classes from their fund lineups in response to this recent regulatory scrutiny.
Last week, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a risk alert dealing with the whistleblower provisions arising out of the Dodd-Frank Act. While examining registered investment advisers and registered broker-dealers, the Staff is reviewing, among other things, compliance manuals, codes of ethics, employment agreements, and severance agreements to determine whether provisions in those documents pertaining to confidentiality of information and reporting of possible securities law violations may raise concerns under Rule 21F-17 under the Dodd-Frank Act. This review is included in examinations as staff deem appropriate. This exam focus follows several recent SEC enforcement actions charging violations of Rule 21F-17 of the Commission’s whistleblower regulations.
Read more here: National Exam Program Risk Alert: OCIE Examining Whistleblower Rule Compliance
SEC OCIE Director, Marc Wyatt, delivered the keynote address at the National Society of Compliance Professionals’ 2016 National Conference.
Fundamentals of Broker-Dealer Regulation 2016 (excerpt)
Speakers: Clifford E Kirsch, Eversheds Sutherland; Cece Baute Mavico, Vice President and Associate General Counsel, LPL Financial; Joseph Sheirer, District Director, FINRA