Category Archives: Compliance

New Year, Old Problem: Broker-Dealers Should Evaluate Their Supervision of Personal Device Use

Many companies that transitioned to a work-from-home environment in early 2020 may have reasonably anticipated a return to the normalcy of in-office operations by the end of the year. Yet as 2021 commences, remote work has become the new normal and firms can expect this arrangement to continue through the first quarter of the year, if not longer. While working from home poses challenges for all businesses, it poses unique concerns for broker-dealers whose associated persons are conducting business from their homes. Broker-dealers must remain keenly attuned to the risks posed by work-from-home arrangements, including specifically the risk that registered representatives and other associated persons use their personal devices or other unapproved and unmonitored channels to communicate with clients and conduct business.

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What to Expect from the SEC Under the Biden Administration

We know there will be new leadership at the SEC.  President Biden has already nominated Gary Gensler as the new SEC Chair. Mr. Gensler, who served as chairman of the CFTC under Obama, was widely perceived as an aggressive CFTC chairman during the financial crisis. At that time, this aggressiveness eased progressives’ concerns that President Obama was appointing a Wall Street executive (Gensler is an alumnus of Goldman Sachs) to head the CFTC. Now, opposition to Gensler is more likely to come from conservatives, who may regard him as an overzealous enforcer.

Meanwhile, the Commission is being led by acting Chair Allison Herren Lee.  Chair Lee is a long-time SEC enforcement attorney who also acted as counsel to Commissioner Kara Stein before assuming her position as a commissioner in mid-2019.  She is regarded as pro-enforcement and will be an ally of Mr. Gensler should he be confirmed as Chairman.

What will this new leadership mean for market participants?

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When PPP met OBA – An Investigation was Born

The government cannot take action against abuses of the various aid programs associated with the CARES Act without first identifying abuses. In a recent round of inquiries, FINRA sent requests to numerous individuals it has identified as having obtained aid under the CARES Act (e.g., the Paycheck Protection Program (PPP) or Economic Injury Disaster Loan (EIDL)).  According to WealthManagement.com, a FINRA spokesperson has said that “FINRA is proactively looking at registered representatives that obtained loans through undisclosed outside business activities.”

Representatives are required to, at a minimum, notify their firms about their OBAs – if not also obtain written approval of them. FINRA’s use of public information about the PPP loans or the EIDL to flag certain representatives is an interesting approach to identifying and addressing a core requirement – the disclosure of representatives’ outside business activities.

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“Luke, I am your father.” (Or not.) Collective False Memory and SEC and FINRA Enforcement Issues from November and December 2020

Often, there are quotes, spellings, symbols, events, or experiences that many of us “know” occurred, but which did not actually happen. This phenomenon is known as the “Mandela Effect,” or “collective false memory.” Its name derives from the false recollection of many people that Nelson Mandela died in the 1980s in prison when, in fact, he lived until 2013.   One example of such a false memory is the iconic quote, “Luke, I am your father,” which Darth Vader proclaimed to his son, Luke Skywalker, in the 1980 classic film “Star Wars: Episode V—The Empire Strikes Back.”  However, that line was never uttered. The correct quote is, “No. I am your father.”

To be clear, we don’t think the securities regulators have false collective memories—other than, possibly, believing this line: “It’s easy for you to produce that information to us. You can just push a button.” And we don’t think the securities industry has such false memories either—other than possibly believing that the SEC sanctioned firms for using the word “may.” (Wait. That really did happen. ) Nonetheless, we thought it would be fun to explore this phenomenon and see how it fits with enforcement matters. After all, it’s important to examine ourselves and our surroundings to better understand what happened and why.

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ADV Season is Here; Compliance Resources for Brokers and RIAs; Don’t Forget Your CPO Annual Affirmations; SEC Creates 5-Year “Sandbox” for BD Custody of Digital Assets

February Regulatory Updates from Cari Hopsfenperger at Hardin Compliance Consulting LLC.

Topics include:

Read the full update here.