Eversheds Sutherland (US) LLP has completed its annual study of the disciplinary actions reported by FINRA in 2016. Key takeaways:
Additional contributor to this post:
Brian L. Rubin, brianrubin@eversheds-sutherland.com
In 2017, broker-dealers will be required to devote significant time and attention to preparing for a shortened settlement cycle. As a means of reducing credit risk, counterparty risk and overall systemic risk, the Securities and Exchange Commission (SEC) has moved forward with proposed rules that would amend Rule 15c6-1(a) in order to reduce the settlement cycle to two business days (T+2).
Recently, FINRA published a report regarding its investor survey (FINRA Investors in the US 2016). The report summarizes findings from an online survey addressing investor relationships with broker-dealers and advisers, investor understanding of fees charged for investment services and investor literacy. The survey finds that a very small percentage of investors own “complex securities,” such as REITs, options and structured notes, which have been a focus of regulatory attention. Most investors own principally individual stocks and mutual funds. More than half of those investors surveyed rely on the services of a broker or other professional adviser for some of their investment decisions, with the percentage being somewhat higher for investors aged 55 and higher. Approximately 16% of those surveyed use robo-advisers. In making investment decisions, 49% expressed a preference for paper deliver of documents. An overwhelming percentage of investors (68%) rely on information from the company in which they are investing in order to make their investment decisions. The investor literacy component of the survey questions revealed that many investors do not have a complete understanding of concepts like short selling and buying stocks on margin, which suggests that broker-dealers and investment advisers have continued work ahead of them in terms of investor education.
For some time now, NASAA, FINRA and the SEC’s Division of Enforcement have been focused on cases involving sales of securities to at risk investors, including senior citizens. In various published remarks, NASAA representatives have noted that approximately one-third of the enforcement actions in recent years have involved sales made to senior citizens. In October 2016, FINRA filed with the SEC proposed rules that would amend Rule 4512 and adopt new Rule 2165. These proposals address a number of the concerns raised by FINRA’s Notice to Members 15-37.
The FINRA proposal would amend existing customer account information rules to require brokers to attempt to obtain the name and contact information for a “trusted contact person” upon opening an account. A broker would not be required to attempt to obtain the name of or contact information for a trusted contact person for accounts in existence prior to the effective date of the proposed rule change until the time that it updates the information for the account either in the course of its normal business, or until it is otherwise required to do so under applicable laws or rules.
