Category Archives: FINRA

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SEC and FINRA Continue to Root Out Bad Brokers

On Thursday, July 27, regulators and industry professionals gathered in Washington, D.C. to discuss the current regulatory environment, cybersecurity, and other hot topics at the SEC and FINRA’s 2017 National Compliance Outreach Program for Broker-Dealers. The panelists, including SEC Commissioner Michael Piwowar, FINRA President and CEO Robert Cook, and Susan Axelrod, the Executive Vice President of … Continue Reading

Confidential Financial Information of Non-Party Customers Placed at Risk When Litigants Subpoena FINRA Enforcement Files

An increasingly common tactic among claimants’ lawyers in Financial Industry Regulatory Authority (FINRA) arbitrations is to issue subpoenas to securities regulators, including FINRA itself, calling for the production of investigative files. This is accomplished by asking the arbitration panel to issue a subpoena pursuant to FINRA Rule 12512 (or Rule 13512 in an employee versus … Continue Reading

FINRA’s 2017 Annual Regulatory and Examination Priorities

On Jan. 4, 2017, FINRA released its 12th annual Regulatory and Examination Priorities Letter in which it identifies its areas of examination focus for 2017, recurring challenges faced by firms, and possible risks impacting the financial sector. FINRA’s 2017 exam priorities do not appear to be revolutionary or new relative to its pronouncements during the … Continue Reading

FINRA Sends Targeted Exam Letter Concerning the Sale of Non-Traded Business Development Companies

FINRA recently sent a sweep letter (or targeted exam letter) to select broker dealers, inquiring about those firms’ sale of non-traded Business Development Companies (BDCs).  BDCs are SEC-registered investment companies (usually closed-end funds) that pool investor funds in a debt or equity portfolio (typically of small- or medium-sized companies), with the objective of generating income … Continue Reading

FINRA Announces Rule 2273, Requiring Broker’s New Firm to Send “Educational Communication” to Broker’s Customers Before Transfer of the Customer’s Assets to the New Firm

FINRA has issued a regulatory notice (RN 16-18) regarding new Rule 2273, which requires member firms, when hiring a new broker from the competition, to send an “educational communication” to that broker’s customers if and when those customers move or seek to move their assets to the hiring firm.  The new rule, which was recently … Continue Reading

Propriety of Constitutional Challenges to Agency Administrative Proceedings Discussed by Federal Regulators, and Supported by at Least One

Top enforcement chiefs from the SEC, CFTC, DOJ and FINRA participated on a panel discussion of current enforcement trends and issues during the Current Enforcement Issues Panel discussion as part of this week’s SIFMA Compliance and Legal Division annual seminar.    The agenda at the SEC dominated much of the discussion. SEC Enforcement Director Andrew Ceresney … Continue Reading

FINRA Seeks Input From Brokerage Firms on ‘Cultural Values’

FINRA has sent a sweep letter to selected broker dealers in order to learn more about how firms “establish, communicate and implement cultural values,” and whether those values are guiding business conduct.  FINRA conducts sweeps like this periodically in order to gather information that it can then use in focusing its regulatory response to emerging … Continue Reading

SEC and FINRA Name EB-5 as a Priority in 2016

Earlier this month, the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) each published their 2016 exam priorities letters. Each agency publishes an exam priority letter annually in which they identify topics of examination focus for the coming year, recurring challenges faced by firms, and perceived areas of heightened risk to … Continue Reading

FINRA Set to Emphasize ‘Firm Culture’ and Ethics as Exam Priorities in 2016

FINRA recently released its 2016 Regulatory and Examination Priorities Letter, an annual event which serves to highlight both emerging and existing risks in the financial services industry. The letter serves as a guide to FINRA’s priorities for the upcoming year, and highlights the issues which FINRA deems most important to its regulatory mission at the moment. … Continue Reading

FINRA and MSRB Propose New Pay-to-Play Restrictions on Broker-Dealer Solicitors and Municipal Advisors; Rules Will Trigger SEC Investment Advisor Third-Party Solicitation Ban

On Dec. 16, 2015, the Financial Industry Regulatory Authority (FINRA) and Municipal Securities Rulemaking Board (MSRB) simultaneously filed with the Securities and Exchange Commission (SEC) rule proposals that will have broad and substantial impacts on the political giving of broker-dealers, investment advisers and municipal advisors and their ability to engage in business with governmental entities … Continue Reading

FINRA Accelerates Public Reporting of Certain Disclosure Information

On Nov. 30, 2015, the SEC approved a change to FINRA’s rule regarding release of certain disclosure information on the BrokerCheck Website. The change will release certain adverse information reported to BrokerCheck on Form U4, U5, or U6, three days after such information is received by FINRA, rather than the current fifteen days. FINRA has announced that … Continue Reading

SEC Approves New Rule Requiring BrokerCheck Link on Websites

The SEC has approved a proposal to amend FINRA Rule 2210, which governs “Communications with the Public.” The new rule will require Internet hyperlinks to FINRA’s BrokerCheck database on websites maintained by broker-dealers, their branch offices, and their registered representatives. BrokerCheck is a searchable database that contains the employment, registration, and disciplinary histories of all … Continue Reading

New Fee Disclosure Model Proposed for Broker-Dealers

A securities industry working group has proposed a new fee disclosure model for broker-dealers.  The working group – which was convened by the North American Securities Administrators Association (NASAA) and included FINRA, SIFMA, the Financial Services Institute, and several broker-dealers – was created in the summer of 2014 with the goal of promoting accessibility, standardization, … Continue Reading

FINRA Announces Proposed New Rules to Protect Senior Investors

FINRA has proposed new rules to protect senior investors and other vulnerable adults from financial exploitation. The proposed rules would require member firms to make reasonable efforts, at the time of account opening for a senior investor, to obtain the name and contact information of a trusted contact person. The proposed rules would also allow firms to … Continue Reading

New FINRA Rule 2040 Becomes Effective

Yesterday, the new FINRA Rule 2040 became effective.  The rule was approved by the SEC earlier this year.  Rule 2040(c) requires a broker-dealer who sells EB-5 securities to disclose to investors the amount of fees paid to foreign finders.  In addition, a broker-dealer must receive written acknowledgement from an investor which shows that the investor is aware … Continue Reading

Voluntary Disclosure to Regulators May Result in Waiver of Privileges

When producing documents to regulators, financial services firms should remain mindful that such disclosures may inadvertently waive attorney-client privilege and work product protection as to third parties.  In In re Steinhardt Partners, L.P., the Second Circuit held that the voluntary disclosure of documents to the SEC waived any work product protection of the same documents … Continue Reading

Due Diligence Outsourcing: Traps for the Unwary

Just as a client performs due diligence on a registered representative before engaging him or her, each broker-dealer must perform different types of due diligence in the course of its business. This can pose a particular burden for smaller firms, which often do not have the compliance staff necessary to conduct specific due diligence responsibilities. … Continue Reading

The SEC and FINRA Double-Down on Cybersecurity Enhancement and Prevention

In the wake of recent cybersecurity breaches, the SEC and FINRA simultaneously issued reports this week to the securities industry summarizing cybersecurity examination findings and to investors recommending certain precautions to safeguard online investment information. In its Risk Alert – Cybersecurity Examination Sweep Summary, the SEC describes the results from examinations of more than 100 … Continue Reading

Payments to Unregistered Persons – The Next Round

The role of the Financial Industry Regulatory Authority (FINRA) regarding payments to unlicensed persons for securities-related and capital-raising activities has expanded. This post gives an overview of the FINRA Rule 2040 (approved by the SEC on Dec. 30, 2014) which governs when and how registered broker-dealers can provide compensation to unregistered persons. Approval of Rule … Continue Reading
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