Share

Broker-Dealers

Monday, August 3, 2015

SEC to Enhance Examination and Compliance Standards in High-Risk Retail Investment Sector

What are the latest developments within the retail retirement investment industry as pertaining to brokerages and financial advisors? 


On June 22, 2015, the Office of Compliance Inspections and Examinations (OCIE) of U.S. Securities and Exchange Commission (SEC) announced its intentions to review certain areas of the retail investment industry deemed to be at a ‘higher risk’ for investment scams and financial harm. Most notably, the OCIE intends to focus on four core categories: 
• Whether retail advisors have a reasonable basis for their recommendations
• Conflicts of interest
• Supervision and compliance controls
• Marketing and disclosure
According to the statement, the OCIE will use a combination of data analytics and registrants’ self-reported due diligence reports to randomly select registrants for the initiative – known as the ReTIRE Initiative

If selected, the evaluation will begin with a review of client files to ensure consistency with federal securities laws when making recommendations for certain investments, including whether the registrant has provided the client with ongoing account management. From there, the selected registrant must demonstrate a dedication to avoiding and/or disclosing conflicts of interest, including whether the registrant maintains certain financial incentives for recommending retail investment products. 

In addition, evaluations will review whether retail investment brokerages or advisors are promoting proper supervision and compliance controls, particularly with regard to firms with multiple branch offices. 

Lastly, marketing and disclosure tactics will be carefully reviewed by the OCIE to ensure customers are not being deceived or misled by unscrupulous advertising techniques. More specifically, the agency will look at the following factors when reviewing marketing materials: 
• The content of all marketing materials is true and accurate, and does not omit material information; 
• All content regarding fees is true, accurate, and not misleading; and
• Marketing materials are forthcoming about credentials.
If you would like additional guidance and counsel as to the upcoming SEC examinations and evaluations, please do not hesitate to contact corporate and securities law firm Lehman Eilen today: (516) 222-0888.  We serve clients in New York City and the surrounding areas.

Friday, June 26, 2015

Industry Warnings About Attacks on Securities Firms' Websites

Distributed Denial of Service (DDoS) Attacks on Financial Services Firms

Cybersecurity continues to be a concern for broker-dealers and investment advisers and a focus of FINRA and the SEC. FINRA issued a Report on Cybersecurity Practices in February 2015, and the SEC’s Division of Investment Management released Cybersecurity Guidance in April, to highlight effective practices that firms should consider to strengthen their cybersecurity programs.

Within the past two weeks, several firms have informed FINRA that they have been subject to DDoS attacks originated by a cyber-criminal group known as DD4BC. A successful DDoS attack renders a website or network unavailable for its intended users by overwhelming the site with incoming messages. It appears that DD4BC has been targeting financial services/broker-dealer firms that have an online presence.

In these incidents, DD4BC first sends the firm an email announcing that the firm will be a target for a DDoS attack, but that the firm can avoid the attack by paying a ransom in Bitcoin. DD4BC conducts a short “demonstration” attack, typically lasting about one hour, with the threat of further attacks if the ransom is not paid. DD4BC requests payment within 24 hours to prevent further attacks.

If you receive a communication from DD4BC or experience a similar attack, you should contact your local FBI and SEC offices and, for broker-dealers, FINRA. In addition, ensure you have plans in place to address this type of incident. Elements of a DDoS response plan may include:

• The use of DDoS mitigation and monitoring tools (firms should consider contacting your Internet service provider (ISP) to put service-provider side traffic filters in place); and
• Preparation of contingency communications plans for customers if a firm’s website is unavailable.

This post quotes liberally from FINRA’s June 19 Information Notice.

The law firm of Lehman & Eilen LLP has advised numerous clients on securities regulatory matters for more than 20 years, and its senior lawyers each have more than 30 years of experience.  Our attorneys are uniquely qualified to advise broker-dealers and investment advisers on compliance issues, and we provide zealous and effective representation to clients facing regulatory investigations and enforcement actions. Contact us today at (516) 222-0888 to learn how our knowledge can be put to work for you.


Friday, June 5, 2015

Proposed Exchange Act Amendment Will Affect Proprietary Trading Firms

When are broker-dealers exempt from FINRA membership?

The U.S. Securities and Exchange Commission (SEC) is proposing an amendment to Rule 15b9-1 of the Exchange Act that would affect proprietary trading broker-dealers who currently are not required to become members of the Financial Industry Regulatory Authority (FINRA).

Presently, there is an exemption from FINRA regulation for broker-dealers that (1) are members of a national securities exchange; (2) carry no customer accounts; and (3) have annual gross income of less than $1,000 from securities transactions effected otherwise than on a national securities exchange of which it is a member (income derived from transactions for the dealer's own account with or through another registered broker-dealer does not count toward the $1,000). This last provision, called the de minimis allowance by the SEC, would be eliminated by the proposed rule. The SEC finds that the way the allowance is being used has strayed too far from its original intent. In particular, the SEC noted that active, cross-market proprietary trading firms rely on the exemption in ways not envisioned when the rule was adopted or amended.

Under the proposed rule, a broker-dealer could qualify for the exception from FINRA regulation  if they effect no off-exchange securities transaction except (1) where the dealer trades on a physical exchange floor but engages in off-exchange transactions for the dealer's own account with or through another registered broker-dealer solely for the purpose of hedging the risks of the dealer's floor-based activities; or (2) where the broker-dealer's only off-exchange transactions result from orders that are routed by the exchange of which the broker-dealer is a member in order to prevent trade-throughs as required by SEC Regulation NMS Rule 611. The requirements of being a member of a national securities exchange and carrying no customer accounts remain the same.

If the proposed amendment is adopted, proprietary trading firms that are not currently FINRA members will have to join. This will increase costs at those firms and present new compliance obligations. Still, the SEC has concluded that an amendment is needed to better reflect today's equities market activity.

Lehman & Eilen LLP has more than 20 years of experience serving as legal counsel to the securities industry. Our attorneys provide broker-dealers with comprehensive representation on regulatory and compliance matters. Contact us today at (516) 222-0888 to learn how our knowledge can be put to work for you.


Thursday, April 2, 2015

FINRA Has a New Background Investigation Rule

What are the new FINRA requirements for background checks?

The Securities and Exchange Commission recently approved FINRA's new Rule 3110(e) regarding background checks of registered persons and verification of information in Form U4; it will replace NASD Rule 3010(e) and take effect on July 1, 2015.

According to Rule 3110(e), an applicant's good character, business reputation, qualifications and experience must be ascertained by investigation before a member submits a Form U4 to register that applicant; this is substantially the same as existing requirements in Rule 3010.  As made clear by a recent FINRA Acceptance, Waiver and Consent, firms currently must conduct a pre-hire investigation beyond the information contained in the CRD.

The new Rule further requires members to adopt written procedures for the investigation and verification of the accuracy and completeness of information contained in an applicant's Form U4. At a minimum, these written procedures must provide for a national search of reasonably available public records. Members must verify that the information in the Form U4 is correct within 30 days of filing the Form U4 (although verification before filing is encouraged).  These requirements might very well lead to increased costs for members, as they find the need to devote more time and resources to background checks or retain outside services to complete them.

We believe most firms will opt to use either major credit reporting agencies to obtain credit reports (in states where permitted) that contain information as to bankruptcies, judgments and liens or specialized providers that search various data bases. (Firms may rely on the fingerprint results to comply with the requirement to conduct a public search of criminal records.)

There will be a Late Disclosure Fee imposed if a disclosure event should have been reported on the Form U4 when it was originally filed, regardless of whether the 30-day verification process window has expired.

In addition, FINRA’s temporary program to refund Late Disclosure Fees assessed for late filing of responses about unsatisfied judgments or liens in limited circumstances was extended to December 1, 2015 from July 31, 2015.

The law firm of Lehman & Eilen LLP has advised numerous clients on securities regulatory matters for more than 20 years, and its senior lawyers each have more than 30 years of experience. Our attorneys provide broker-dealers with comprehensive representation on regulatory and compliance matters. Our services include helping firms with drafting written supervisory procedures and advising on Forms U4 and U5 and other employee-related matters. Contact us today at (516) 222-0888 to learn how our knowledge can be put to work for you.






© 2019 Lehman & Eilen LLP | Attorney Advertising
50 Charles Lindbergh Blvd, Suite 505, Uniondale, NY 11553
| Phone: (516) 222-0888

Overview of Services | Broker-Dealers | Investment Management | Transactional and Business Law | Counseling and Compliance | Private and Public Financings | Securities Exchange Act Reporting | Regulatory Investigations and Enforcement Actions | Dispute Resolution | Special Regulatory Counsel | Our Professionals | About Our Firm

Law Firm Website Design by
Amicus Creative