Category Archives: Regulatory

FINRA 5110 Enforcement Action. . . A Harbinger of Things to Come?

On November 3, 2016, FINRA issued an enforcement action against a registered broker-dealer for violations related to FINRA Rule 5110, which requires firms to make certain regulatory filings in connection with the public offering of securities.  More specifically, the firm replaced the dealer manager of a real estate investment trust offering, and failed to seek or obtain FINRA approval, instead incorrectly believing that they could rely on the prior dealer manager’s FINRA approval.  In addition, the firm failed to have adequate supervisory procedures to monitor the limits on underwriting compensation as required by FINRA Rule 5110.  FINRA rarely issues enforcement actions for violations of FINRA Rule 5110, so this action may represent an increased regulatory focus on how firms handle and manage the offering of securities.

Focus on Senior Investors: FINRA’s Latest Rule Proposals

On October 19, 2016, FINRA filed with the SEC a proposed rule change that would amend FINRA Rule 4512 (Customer Account Information), and adopt new FINRA Rule 2165 (Financial Exploitation of Specified Adults).  The proposed 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.

This rule proposal fits squarely within FINRA’s recent focus on protecting senior investors, particularly with FINRA’s recent launch of the “Securities Helpline for Seniors,” and should remain a continued regulatory focus moving forward.

Brexit: What Alternative Asset Managers Can Expect

On 23 June 2016, the British public voted to leave the European Union after 43 years of membership. Although the results of the referendum are not binding in law and there remains a possibility of a constitutional challenge, the early indications from Prime Minister Theresa May and leading figures within the ruling Conservative Party are that the United Kingdom will proceed with the so-called Brexit. How might Brexit affect alternative asset managers in the United Kingdom and the United States?

Read more here: Brexit: What Alternative Asset Managers Can Expect

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

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.

Read more here:Déjà Vu All Over Again – FINRA Takes Another Look at Mutual Fund Sales Charge Waivers

SEC/FDIC Propose Dodd-Frank BD Resolution Rules

Troubled financial institutions, some with substantial broker-dealer operations, played a prominent role in the 2008 financial crisis. In an effort to protect the financial system from serious threats posed by significant nonbank financial companies in financial distress, Congress enacted Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) to provide for an orderly liquidation of such entities under the supervision of federal authorities. Federal regulators have proposed rules that would implement the provisions of Title II in regard to the resolution of a large broker-dealer. Most notably, the proposed rules address how a “bridge broker or dealer” could be used in connection with the liquidation of a “covered broker or dealer.”

Read more here: SEC and FDIC Propose Dodd-Frank Broker-Dealer Resolution Rules