- In 2021, fines and restitution spiked despite a decrease in the number of cases compared with 2020
- FINRA continues to target specific areas, such as anti-money laundering violations, which for the sixth year in a row resulted in the largest amount of fines.
- Regulators appear to be gearing up for actions involving RegBI/Form CRS
Every year, FINRA brings hundreds of cases, many alleging that firms have inadequate policies and procedures. In the overwhelming majority of those cases, the Chief Compliance Officer (CCO), who FINRA considers to be “a primary advisor to the member on its overall compliance scheme and the particularized rules, policies and procedures that the member adopts,” is not charged. With regard to Anti-Money Laundering (AML) cases, AML compliance officers (AMLCOs) are also infrequently charged. Questions that always follow such cases include the following: When are violations “firm issues” and when should the compliance officer get charged?
Despite the relatively small percentage of cases brought against compliance officers, they are (unsurprisingly) concerned about being in the cross hairs of regulators, and being subject to personal liability. Compliance officers are usually the firm’s central point of communications with regulators, responsible for responding to regulatory inquiries, producing documents, and answering questions. In many investigations, they must provide on-the-record testimony, even if the case does not directly involve their core functions.
Due to these concerns, on January 10, 2022, the National Society of Compliance Professionals (NSCP) proposed a “Firm and CCO Liability Framework” (NSCP Framework) to “provide guidance to regulators, chief compliance officers (CCOs), and firms regarding perceived or actual CCO liability.” The NSCP Framework developed nine questions to be “considered by regulators where a compliance failure may have occurred,” to evaluate CCO liability.
To facilitate compliance with amendments to Rule 206(4)-1 (Marketing Rule) under the Investment Advisers Act of 1940, we developed a Compliance Checklist. The date for compliance is November 4, 2022 – by which time registered investment advisers must adopt and implement new policies and procedures, and build the operational and supervisory systems necessary for compliance.
- The Marketing Rule modernizes the regulatory regime governing investment adviser marketing practices and revises standards that investment advisers have been operating under for decades.
- Compliance with the Marketing Rule will require significant changes to investment advisers’ marketing practices, including use of testimonials, endorsements, or third party ratings and investment advisers’ use of performance information.
- The Compliance Checklist is intended to serve as a helpful guide for legal and compliance personnel responsible for developing compliant policies, procedures, and systems that account for these sweeping changes.
You can access it here.
Samuel Langhorne Clemens, d/b/a Mark Twain, was the author of many outstanding (and often humorous) books and short stories that had good guys (e.g., Huck, Jim and Tom), bad guys (e.g., Pap Finn; the Duke and the Dauphin, who were the equivalent of the 19th century boiler room fraudsters), self-regulators (e.g., Aunt Polly and the Widow Douglas), an actual Judge (well, fictional, but you know what we mean) (Judge Thatcher, father of Becky), and sanctions (the Duke and the Dauphin are tarred and feathered – a bit different from being censured or ordered to cease and desist). In other words, his stories sound a lot like some of the securities enforcement cases we regularly read.
During the pandemic, we have had a lot of lows, as well as a few highs. And that’s just in pop culture. For example, who could forget the Tiger King? And the Queen’s Gambit? We’ve had heroes and villains and everything in between. And we’ve had a streaming show starring a knight in shining armor – well, a big mustache, an even bigger heart, and strong Southern accent – providing us with heroes, rules to live by, homespun humor and rules subject to interpretation (see, e.g., “offsides”). No, we’re not talking about securities enforcement and compliance. We’re talking about Ted Lasso, the irrepressible former football coach of the Wichita (Kansas) State Shockers, who ends up coaching the other futbol (a/k/a soccer) for AFC Richmond in England’s Premier League.
Not surprisingly, to anyone who has read our prior compliance and enforcement columns, this month’s NSCP Currents article is inspired by the ever positive, glass-always-half-full Ted Lasso to provide lessons for securities professionals, as well as lessons for the rest of use on how to live better lives. Or, as Ted would say (and, in fact, did say), “the harder you work, the luckier you get.”