On March 30, 2017, FINRA issued Regulatory Notice 17-11 (Financial Exploitation of Seniors), announcing the SEC’s approval of amendments to the FINRA rulebook related to the financial exploitation of senior investors. More specifically, as adopted, the amendments to FINRA Rule 4512 would require broker-dealers to make reasonable efforts to obtain the name and contact information for a “trusted contact person” for a customer’s account. In addition, new FINRA Rule 2165 would permit (but not require) broker-dealers to place temporary holds on disbursements of funds or securities from the accounts of certain senior investors, as well as other investors with diminished capacity, when there is a reasonable belief of financial exploitation. The FINRA notice announces an effective date of February 5, 2018, and clarifies, among other things, that the temporary hold on disbursements should not apply to securities transactions.
On March 8, 2017, FINRA’s Board of Governors will meet to discuss certain proposed rulemaking considerations, including proposals to streamline and modernize FINRA Rule 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements). FINRA Rule 5110 governs member firm participation in the public offering of securities, and imposes certain filing requirements and related compensation restrictions for members participating in a public securities offering. Upon approval from FINRA’s Board of Governors, any formal proposal will still need to be published for comment to FINRA member firms (typically through a “Regulatory Notice” filing) and also published for review and approval by the SEC.
A proposal seeking to delay the applicability date of Department of Labor’s fiduciary duty rule (“DOLFR”), which impacts the compensation received by broker-dealers and investment advisers for the distribution of covered retirement accounts, was published on Thursday, March 2, 2017. According to the federal register’s notice, the applicability date (which had been scheduled for April 10, 2017) was proposed to be delayed by 60-days to June 9, 2017. The proposal allows for a 15-day comment period from the March 2, 2017 publication date, which would end on March 17, 2017. The proposal also invited comment on a February 3, 2017 Presidential Memorandum to the Secretary of Labor, requesting broader review of DOLFR and its related exemptions.
For more on the DOLFR, including legal alerts and commentary, see www.dolfiduciaryrule.com.
On November 14, 2016, FINRA fined a registered broker-dealer $650,000 for failing to safeguard confidential customer data against foreign hackers. Confidential customer information was stored on the firm’s electronic system without adequate protection from cyber hackers, which resulted in the exposure of confidential information for approximately 5,400 firm customers. Although there was no evidence that the exposure of this customer information resulted in any distinct customer harm, FINRA insisted that the firm’s cybersecurity procedures and systems were inadequate. The firm’s prior disciplinary history (similar fine in 2011) was also an important factor in FINRA’s decision to levy this $650,000 punishment.
On November 10, 2016, the SEC announced charges against an Israeli-based firm related to its sale of binary option trading. The SEC fined the firm more than $1.7 million for failing to register the binary options as securities, failing to register as a broker-dealer for its sales of binary options to U.S. investors, and for misleading investors in its disclosures related to the risks associated with binary option trading.
In connection with this enforcement action, the SEC also issued an “Investor Alert” on the same day, warning potential investors that many binary option trading contracts are not properly registered with the SEC and may be associated with fraudulent investment schemes.