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.
OCIE Exam Reviews to Include Whistleblower Rule Compliance
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.
Read more here: National Exam Program Risk Alert: OCIE Examining Whistleblower Rule Compliance
SEC Enforcement: Year of Firsts and Big Data
Last week, at the Securities Enforcement Forum in Washington, DC, senior staff of the SEC’s Division of Enforcement shed light on risks that asset managers and fund boards should be aware of. Their comments followed a record enforcement year resulting in more than $4 billion in disgorgement and penalties. Fueled in part by data collection technology, the SEC brought 868 enforcement actions the past fiscal year. Approximately 20% involved investment advisers or investment companies, the highest percentage in history, including one that found a private equity adviser to be acting as an unregistered broker/dealer, and others that involved alleged insufficient disclosure around accelerated monitoring fees.
Read more here: SEC Enforcement Staff Touts Year of Firsts and Big Data
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.
SEC’s Buddy Donohue outlines future compliance challenges
SEC Chief of Staff, Buddy Donohue’s speech at the National Society of Compliance Professionals’ 2016 National Conference.