Category Archives: Compliance

Compliance, Regulatory, Standard of Care

The SEC’s new standard of conduct rules – application to retirement accounts

August 12, 2019 Clifford E. Kirsch, Editor Leave a comment

In completing its broker-dealer standard of conduct rulemaking, the SEC addressed important questions about the applicability of those requirements to retirement accounts. This alert provides analysis of the reach of the new requirements in the retirement market, including:

the types of broker-dealer interaction with plan participants that fall within the reach of Regulation Best Interest and Form CRS
how the new rules deal with the treatment of rollover advice to plan participants and IRA owners
practical considerations regarding the distinction between “investment education” and “recommendations”

Here’s looking at you, FINRA — Extraordinary Cooperation and Self-Reporting

August 2, 2019 Clifford E. Kirsch, Editor Leave a comment

On July 11, 2019, the Financial Industry Regulatory Authority released Regulatory Notice 19-23, providing new guidance on what constitutes “extraordinary cooperation” in FINRA investigations, and what credit FINRA may give to broker-dealers or individuals. How will this guidance affect firms that self-report violations under FINRA Rule 4530(b)?

SEC approves investment advice standard of conduct rules

June 6, 2019 Clifford E. Kirsch, Editor Leave a comment

Yesterday, in a 3-1 vote, the US Securities and Exchange Commission (SEC) adopted a comprehensive package of rulemakings and interpretations governing the standard of conduct applicable to broker-dealers providing retail investment advice and the fiduciary duty applicable to SEC-registered investment advisers. The package includes the following specific components:

a new rule establishing a standard of conduct (captioned as “Regulation Best Interest”) for broker-dealers and natural persons who are associated persons of a broker-dealer when making recommendations to retail customers of any securities transaction or investment strategy involving securities or regarding the opening of an account;
the Form CRS Relationship Summary, requiring registered broker-dealers and investment advisers to provide a brief relationship summary to retail investors;
an interpretation of the fiduciary duty applicable to SEC-registered investment advisers; and
an interpretation of the “solely incidental” prong of Section 202(a)(11)(C) of the Investment Advisers Act of 1940 (which provides an exclusion from the definition of investment adviser for broker-dealers who provide investment advice on a solely incidental basis to their brokerage activities and do not receive any special compensation for it).

Commissioners Clayton, Peirce and Roisman voted to adopt the package of rulemakings and interpretations, while Commissioner Jackson did not. The SEC has released the adopted versions of Regulation Best Interest, Form CRS, the Investment Adviser Fiduciary Duty Interpretation, and the Solely Incidental Interpretation. A compliance date of June 30, 2020 is set for Regulation Best Interest and Form CRS. The SEC’s two interpretations under the Investment Advisers Act of 1940 will become effective upon publication in the Federal Register

Counting down to June 5

June 4, 2019 Clifford E. Kirsch, Editor Leave a comment

As we count down to this Wednesday’s open meeting in which the US Securities and Exchange Commission (SEC) will consider whether to adopt its proposed rulemaking package relating to the standards of conduct applicable to financial professionals, we are hopeful to receive answers to certain critical questions about the SEC’s proposals.

DC Circuit finds negligent, but not willful fraud for inadequate disclosures

May 15, 2019 Clifford E. Kirsch, Editor Leave a comment

In a much-anticipated decision, on April 30, 2019, the US Court of Appeals for the District of Columbia Circuit issued its decision in Robare, a case that concerned an investment adviser’s (IA) disclosure of conflicts of interest regarding its receipt of payments from a custodian. The court held that the Commission’s findings of “negligent” violations under Section 206(2) were supported, but the Commission’s findings of “willful” violations under Section 207, based on the same negligent conduct, “are erroneous as a matter of law.”