Category Archives: Compliance

Standard of Care, Compliance, Enforcement

The Death Knell for L-Share Variable Annuities?

November 8, 2016 Benjamin T. Marzouk Leave a comment

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.

Compliance, Enforcement

OCIE Exam Reviews to Include Whistleblower Rule Compliance

November 2, 2016 Clifford E. Kirsch Leave a comment

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.

Compliance, Enforcement

OCIE’s Marc Wyatt Shares Thoughts on National Exam Program

October 20, 2016 Clifford E. Kirsch Leave a comment

SEC OCIE Director, Marc Wyatt, delivered the keynote address at the National Society of Compliance Professionals’ 2016 National Conference.

https://www.sec.gov/news/speech/inside-the-national-exam-program-in-2016.html.

Compliance, Enforcement

Active or Passive Investor? It Depends. . .

July 30, 2016 BDIA Editors Leave a comment

On July 12, 2016, the U.S. Department of Justice (the “DOJ”) announced that investment firm ValueAct had entered into a consent decree in which it agreed to pay $11 million to settle charges that two of its affiliated funds acquired large stakes in Halliburton Company (“Halliburton”) and Baker Hughes Incorporated (“Baker Hughes”) in violation of the notification and waiting requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the “HSR Act”). The DOJ asserted that ValueAct was required to make an HSR Act filing, but ValueAct had asserted that no such filing was required due to the “investment-only” or so-called “passive investor” exemption. On the heels of such announcement, the Securities and Exchange Commission (the “SEC”) provided clarification that it does not view the inability to utilize the “passive investor” exemption under the HSR Act as equivalent to an investor not being considered “passive” for purposes of Section 13(d) under the Securities Exchange Act of 1934 (the “Exchange Act”).

Regulatory, Compliance

Déjà Vu All Over Again – FINRA Revisits Mutual Fund Sales Charge Waivers

June 10, 2016 BDIA Editors Leave a comment

The Financial Industry Regulatory Authority is once again taking a close look at member firm mutual fund sales practices and sales charge waivers (Mutual Fund Waiver Sweep) in the U.S. FINRA’s target exam letter seeks information about mutual fund sales to retirement plans and charitable accounts, as well as the sales charge waivers that mutual funds make available to eligible purchasers. FINRA’s Mutual Fund Waiver Sweep covers the period from January 1, 2011 through December 31, 2015 and, as drafted, seeks responses from FINRA member firms by June 10, 2016.