As robo-advisers continue to grow in popularity with investors, especially millennial investors, at least one regulator is taking a closer look.  On July 14, 2016, Massachusetts Secretary of the Commonwealth
Continue Reading Massachusetts Offers Policy Guidance on Investment Advisers’ Use of Robo-Advisers

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

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
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

The Office of the Comptroller of the Currency (“OCC”) recently released new guidance on the process it uses when considering enforcement actions against banking institutions and individuals for potential non-compliance with Bank Secrecy Act (“BSA”) compliance program requirements and anti-money laundering (“AML”) rules.  At the same time, the OCC also issued a revised policy for assessing civil monetary penalties against both institutions and individuals for compliance violations. The revised policy makes clear that the OCC intends to use the threat of monetary penalties to hold individuals – compliance officers, managers, executives, directors, or any employee of a banking institution – accountable for compliance violations. Compliance with BSA/AML programs is not simply an institutional or bank-only issue; responsibility for ensuring compliance with these programs rests with Boards of Directors, management and individual compliance personnel. Additionally, compliance is not merely a regulatory concern; the recent OCC guidance also makes clear that the OCC will notify criminal law enforcement authorities (including FinCEN, the Financial Crimes Enforcement Network) of “all formal and informal enforcement actions” pursued by the regulators.

The OCC has a statutory mandate to issue a cease-and-desist order when problems or weaknesses in a bank’s compliance systems and controls rise to the level of noncompliance with BSA requirements or result in repeat or uncorrected compliance issues. In addition to a mandatory cease-and-desist order, the OCC may also pursue civil monetary penalties (“CMP”).  The OCC’s process generally allows notice and an opportunity to respond within 15 days of written notice of noncompliance to either an institution or individual. The OCC’s new guidance sets forth the process by which a bank or an individual may respond to a notice of noncompliance.


Continue Reading OCC Issues New Guidance and Policies on Enforcement Actions and Civil Monetary Penalties Against Institutions and Individuals

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 or priority issues, and it specifically identified “firm culture” as an area of emphasis in its 2016 examination priorities letter.  Although the concept of firm culture was left undefined in the exam priorities letter, FINRA noted in the sweep letter that “one definition” of firm culture is “the set of explicit and implicit norms, practices and expected behaviors that influence how employees make and carry out decisions in the course of conducting the firms’ business.”  The sweep letter appears designed to investigate what those norms and practices look like at present in the industry, as the regulator has expressed its desire to “better understand industry practices” and to “determine whether firms are taking reasonable steps to properly establish and implement their own cultural values within the firm.”  The issuance of the sweep letter appears to be FINRA’s first step towards what it described in the exam priorities letter as “formalizing” its assessment of firm culture.

As part of its review, FINRA will meet with executives, compliance and legal personnel and risk management staff at a small number of brokerage firms to discuss cultural values and how those firms communicate and reinforce their values within their organizations.  FINRA is “particularly interested” in how individual firms measure compliance with their own cultural values, what metrics (if any) are used, and how the firms “monitor for implementation and consistent application of those values” throughout the organization.  In advance of those meetings, FINRA has asked the firms selected for the targeted exam to provide it with a significant amount of thought-provoking information, including:
Continue Reading FINRA Seeks Input From Brokerage Firms on ‘Cultural Values’

Last spring, the U.S. Department of Labor proposed a controversial new rule which would govern retirement accounts, including IRAs and qualified employer-sponsored plans.  The rule – which would impose a fiduciary standard of care on advisors who offer advice regarding retirement accounts – is now one step from being finalized.  The Labor Department recently delivered the proposed rule to the Office of Management and Budget (OMB), which reviews proposed rules for economic consequences.  Once OMB has signed off on the proposal, it will go back to the Labor Department for publication and implementation.  OMB has 90 days to complete its review, although the process in this case is expected to be finished much sooner, perhaps as early as March.
Continue Reading Proposed Fiduciary Rule for Retirement Accounts One Step Closer to Reality