Category Archives: Standard of Care

Compliance, Enforcement, Regulatory, Standard of Care

A Record-Breaking Year for FINRA in 2016; What May Come in 2017?

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2016 will be remembered as an historic year: the Olympics, the Chicago-Cleveland World Series, and the presidential election. In the regulatory world of FINRA, there was also an historic year as FINRA continued its trend of ordering significant fines, shattering its
previous record set in 2014. If firms and their representatives were not paying attention to this trend, they should be now. Although some have speculated about a reduction in the SEC’s Enforcement program with the new administration, FINRA shows no signs of slowing down. By analyzing FINRA’s 2016 sanctions and cases, including the issues that resulted in the most significant fines and emerging enforcement trends, what predictions can we make about key issues for FINRA for 2017 and beyond?

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Additional contributor to this post:

Brian L. Rubin, brianrubin@eversheds-sutherland.com

Compliance, Regulatory, Standard of Care

The Final Rule: The Fifth Request for Public Comments

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On June 29, 2017, the Department of Labor released a request for information, seeking public comments yet again on its new “investment advice” fiduciary definition and related exemptions which became applicable on June 9.

  • This is the fifth request for public comments under the Administrative Procedure Act since DOL undertook this rulemaking in October 2010, and the second in the last four months.
  • There could be a sixth iteration later this year, in connection with any proposed changes to the Final Rule and/or delay of the January 1, 2018, date for compliance with the full conditions of the Best Interest Contract Exemption, the Principal Transaction Exemption and PTE 84-24.
  • In addition, on June 1, US Securities and Exchange Commission Chair Jay Clayton issued a statement requesting comments on the standard of conduct under the securities laws that should be applicable to investment advisers and broker-dealers serving retail investors, which includes retirement investors.

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Additional contributor to this post:

W. Mark Smith, marksmith@eversheds-sutherland.com

 

Compliance, Regulatory, Standard of Care

Sleuthing Through State Elder Financial Exploitation Laws— A Morass for Broker-Dealers

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The issues for broker-dealers are complicated because a good deal of research (or sleuthing) needs to be undertaken to grasp the breadth of potential liability a broker-dealer may face for not reacting to an indication of senior exploitation among the broker-dealer’s client base. This is an area where red flags mean everything and consistency in the law is a goal still to be achieved. In short, each state endeavors to protect its elderly and vulnerable populations from financial exploitation in its own unique way. A broker-dealer cannot wait until a particular case of potential financial exploitation presents itself; the complexity of determining the broker-dealer’s obligations under state law, if not researched in advance, could cause a broker-dealer to unwittingly expose itself to civil and/or criminal liability.

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Additional contributors to this post:

Holly H. Smith,  hollysmith@eversheds-sutherland.com

Sarah Razaq Sallis, sarahsallis@eversheds-sutherland.com

Compliance, Regulatory, Standard of Care

The Final Rule: June 9 is the Launch Date After All

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With its announcements of May 22, 2017, starting with an op-ed in The Wall Street Journal, the Department of Labor confirmed that, absent last-minute action in the courts or by Congress, its new “investment advice” fiduciary definition and related exemptions will become applicable on June 9, on the terms specified on April 4. DOL also updated its stated enforcement policy for 2017 and released a third set of FAQs, which primarily address transition period issues.

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Additional contributor to this post:

W. Mark Smith, marksmith@eversheds-sutherland.com

Enforcement, Regulatory, Standard of Care

Senior Investors Focus of New “Principal Consideration” in FINRA Sanctions

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Last month, FINRA’s National Adjudicatory Council (NAC) introduced new Sanction Guidelines which allow the NAC and FINRA staff to take into consideration the “undue influence” of registered individuals over vulnerable customers in determining appropriate sanction levels. The last update to the Guidelines occurred approximately two years ago, and included changes related to unsuitable recommendations and misrepresentations. Last month’s changes to the Guidelines provide for the first time a “principal consideration that analyzes whether a respondent has exercised undue influence over a customer.” Now listed as a specific factor for adjudicators and FINRA staff to consider in determining appropriate sanctions is  “[w]hether the respondent exercised undue influence over the customer.”

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Additional contributors to this post:

Bruce M. Bettigole, brucebettigole@eversheds-sutherland.com

Sarah Razaq Sallis, sarahsallis@eversheds-sutherland.com