Compliance Bulletin Archives - Compliance Risk Concepts

Regulatory News Update: SIPC Nearing Launch of Broker-Dealer Portal

CRC — Wed, 25 Oct 2023 13:44:15 +0000

October 20, 2023

What: The Securities Investor Protection Corporation (“SIPC”) is nearing the launch of an online portal for Broker-Dealers.

Who: Broker-Dealers (including Broker-Dealers claiming exclusion from SIPC membership)

When: Portal launches on November 1, 2023.

Why: The new portal will allow Broker-Dealers to file forms, pay assessments, and communicate with SIPC.

How: Initial access to the SIPC Portal will be on a staggered basis, based on the broker-dealer’s fiscal year. Each Broker-Dealer’s Chief Compliance Officer (CCO) must either act as the Broker-Dealer’s Portal Administrator or delegate this responsibility to another individual. Check out SIPC’s Portal Administrator Delegation webpage for more details.

Why it matters: Once the SIPC Portal is operational, SIPC will no longer accept filings by mail, email, or fax. Broker-dealers that fail to use the SIPC Portal will not be able to submit required filings with SIPC.

CRC keeps its thumb on the pulse of the evolving regulatory landscape. Keep an eye out for additional information, including updated guidance, risk alerts, and CRC’s thoughts on how to ensure successful compliance with evolving regulatory expectations within your firm’s existing regulatory compliance program.

Contact Mitch Avnet for further details: (646)346-2468 | mavnet@compliance-risk.com

The post Regulatory News Update: SIPC Nearing Launch of Broker-Dealer Portal appeared first on Compliance Risk Concepts.

Monthly Regulatory Summary (September 2023)

CRC — Sun, 01 Oct 2023 03:56:25 +0000

As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of FINRA, SEC, and NFA notices and bulletins to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.

FINRA

Regulatory Notices

Per Regulatory Notice 23-15, the SEC has amended Rule 15c6-1(a) under the Securities Exchange Act of 1934 to shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date (T+2) to one business day after the trade date (T+1). To aid firms in preparing for this transition, FINRA is updating the Regulatory Extension (REX) system to enable firms to file extension of time requests under the shortened settlement cycle. Firms may file such requests beginning May 31, 2024, via the batch file process and by completing the online request form by logging into the REX system via FINRA Gateway. Further, FINRA is updating the REX Customer Test Environment to allow testing under various scenarios for both batch and online request form filings.

Special Notices

There were no Special Notices in September.

SEC

Final Rules

Per Release No. 33-11235, the SEC is adopting amendments to Volume II of the Electronic Data Gathering, Analysis, and Retrieval system Filer Manual (“EDGAR Filer Manual” or “Filer Manual”) and related rules and forms. EDGAR Release 23.3 will be deployed in the EDGAR system on September 18, 2023.

Per Release No. 33-11238, the SEC is amending the rule under the Investment Company Act of 1940 (“Investment Company Act” or “Act”) that addresses certain broad categories of investment company names that are likely to mislead investors about an investment company’s investments and risks. The amendments to this rule are designed to increase investor protection by improving, and broadening the scope of, the requirement for certain funds to adopt a policy to invest at least 80 percent of the value of their assets in accordance with the investment focus that the fund’s name suggests, updating the rule’s notice requirements, and establishing recordkeeping requirements. The SEC is also adopting enhanced prospectus disclosure requirements for terminology used in fund names, and additional requirements for funds to report information on Form N-PORT regarding compliance with the names-related regulatory requirements.

Per Release No. 34-98437, the SEC is adopting amendments to the SEC’s regulations under the Privacy Act of 1974, as amended (“Privacy Act”). The amendments revise the SEC’s regulations under the Privacy Act to clarify, update, and streamline the language of several procedural provisions.

Proposed Rules

Per Release No. 33-11232, the SEC is proposing rule and form amendments concerning access to and management of accounts on the Commission’s Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) that are related to potential technical changes to EDGAR (collectively referred to as “EDGAR Next”). The SEC is proposing to require that electronic filers (“filers”) authorize and maintain designated individuals as account administrators and that filers, through their account administrators, take certain actions to manage their accounts on a dashboard on EDGAR. Further, we propose that filers may only authorize individuals as account administrators or in the other roles described herein if those individuals first obtain individual account credentials in the manner to be specified in the EDGAR Filer Manual. As part of the EDGAR Next changes, the SEC would offer filers optional Application Programming Interfaces (“APIs”) for machine-to-machine communication with EDGAR, including submission of filings and retrieval of related information. If the proposed rule and form amendments are adopted, the SEC would make corresponding changes to the EDGAR Filer Manual and implement the potential technical changes.

Per Release No. 33-11250, the SEC is proposing rule and form amendments to provide a tailored form to register the offerings of registered index-linked annuities (“RILAs”). Specifically, the SEC is proposing to amend the form currently used by most variable annuity separate accounts, Form N-4, to require issuers of RILAs to register offerings on that form as well. To facilitate this amendment, the SEC is also proposing to amend certain filing rules and make other related amendments. These changes would, if adopted, implement the requirements relating to RILAs contained in Division AA, Title I of the Consolidated Appropriations Act, 2023. Further, the SEC is proposing other amendments to Form N-4 that would apply to all issuers that would use that form under the proposal. The SEC is also proposing to apply to RILA advertisements and sales literature a current SEC rule that provides guidance as to when sales literature is materially misleading under the Federal securities laws. The SEC is proposing a technical amendment to Form N-6 to correct an error from a prior SEC rulemaking. Finally, the SEC requests comment as to whether to require the registration of market-value adjustments associated with certain annuities on Form N-4 as well.

Interim Final Rules

There were no interim final rules in September.

Interpretive Releases

There were no interpretive releases in September.

Policy Statements

There were no policy statements in September.

NFA

Notices to Members

Notice I-23-16

September 8, 2023

Board and Nominating Committee Members Whose Terms Will Expire at the Board's 2024 Regular Annual Meeting and Executive Representative Reminder

On November 17, 2022, NFA's Board of Directors unanimously approved amendments to NFA's Articles of Incorporation (Articles)¹. As a result, effective February 2024, NFA's Board will be reduced from 29 to 21 Directors, and the terms of all current Directors will expire at the Board's regular Annual Meeting on February 15, 2024.

Each year, prior to October 15th, NFA's Secretary notifies all Members of the elected Board Directors and Nominating Committee members whose terms will expire at the Board of Directors' regular annual meeting in the following categories: FCM and LTM; IB; CPO and CTA; and SD, MSP and RFED. Given NFA's Board's reduction, the attached list of Board members whose terms expire in February 2024 contains the names of all current Directors in the Member categories. Also attached is a list of Nominating Committee members in each of the Member categories whose terms expire in February 2024.

NFA's Secretary requests Members to recommend eligible persons to the Nominating Committee for consideration to fill each open Board position and the open Nominating Committee position for each Board category. Incumbent Directors, if otherwise eligible, may be recommended to the Nominating Committee. The specific criteria regarding the composition of the representatives in each Member category on the Board of Directors and the Nominating Committee is provided below. Please use the attached form to submit names of persons eligible to fill the vacancies on the Board of Directors and the Nominating Committee.

The Nominating Committee will consider the names that are submitted and nominate at least one person for each open Board position and one person for each open Nominating Committee position. Thereafter, additional nominations may be made by petition pursuant to NFA's Articles. Upon completion of its work, NFA will issue a Notice to Members announcing the Nominating Committee's nominations to fill the Board and Nominating Committee vacancies, which will also provide the procedures for filing a nomination by petition.

NFA's Board of Directors and Open Positions as of the February 15, 2024 Board of Directors' Regular Annual Meeting

Since all Directors' terms will expire at the February 2024 Board meeting, the following vacancies must be filled:

Four (4) FCM representatives of which two (2) must be FCMs ranked as a top-ten FCM and (2) must be FCMs not ranked as a top-ten FCM based on the total of futures customer segregated funds, cleared swaps customer collateral and foreign futures or foreign options secured amounts (customer segregated funds), as those terms are defined in the applicable Commission regulations, held as of June 30 preceding the election;

One (1) IB representative;

Three (3) representatives of CPOs or CTAs that are NFA Members reporting funds under management allocated to futures and swaps (as defined in Article XVIII) on NFA Form PQR or NFA Form PR as of June 30 preceding the election (Funds Under Management) of which one (1) representative must be a CPO or CTA ranked within the top 10 percent based on Funds Under Management; one (1) representative must be a CPO or CTA ranked within the top 20 percent based on Funds Under Management; and one (1) is an at-large representative from CPOs or CTAs with no restriction on its rank among CPOs and CTAs reporting Funds Under Management; and

Four (4) SD/MSP/RFED representatives of which two (2) must be representatives of SDs that are Large Financial Institutions as of June 30 preceding the election and two (2) representatives of SDs, MSPs or RFEDs that are not Large Financial Institutions as of June 30 preceding the election. NFA's Board of Directors has resolved to use the list of Participating Dealers on the Federal Reserve Bank of New York's website on a designated webpage "OTC Derivatives Supervisors Group" to define Large Financial Institutions.

Nominating Committee Open Positions

Nominating Committee open positions for the 2024 Member election:

One (1) open position for an FCM Representative who may be affiliated with either a top-ten FCM or a non-top ten FCM based on customer segregated funds as of June 30 preceding the election;
One (1) open position for an IB Representative who may be affiliated with either a Guaranteed IB or an Independent IB;
One (1) open position for a CPO/CTA Representative who must be affiliated with a CPO or CTA ranked within the top ten percent based on Funds Under Management; and
One (1) open position for an SD/MSP/RFED Representative who is affiliated with an SD/MSP/RFED of a Non-Large Financial Institution as of June 30 preceding the election.

NFA is a membership organization. NFA Members have a voice in NFA's governance through the exercise of the right to recommend candidates and to nominate and elect individuals to serve on NFA's Nominating Committee and Board of Directors. The Nominating Committee relies heavily on the recommendations of the membership in making its nominating decisions. Please give this matter serious consideration and return your submission(s) to NFA for receipt no later than September 29, 2023.

Notice I-23-17

September 20, 2023

FCM and IB Members—FinCEN issues alert on virtual currency investment scam known as "Pig Butchering"

On September 8, 2023, the Financial Crimes Enforcement Network (FinCEN) issued a news release alerting U.S. financial institutions of a prominent virtual currency investment scam known as “pig butchering.” The alert explains the scam’s methodology; provides behavioral, financial, and technical red flags to help financial institutions identify and report related suspicious activity; and reminds financial institutions of their reporting requirements under the Bank Secrecy Act (BSA). As U.S. financial institutions under the BSA, NFA Member futures commission merchants and introducing brokers should review the alert and comply with the suspicious activity report (SAR) requirements if applicable.

News Releases

September 12, 2023

NFA orders Denver-based firm Transamerica Asset Management Inc. to pay a $140,000 fine and sanctions a former Transamerica employee

September 12, Chicago—NFA issued Decisions against Transamerica Asset Management Inc. (Transamerica), an NFA Member commodity pool operator located in Denver, Colorado, and its former employee, Quynh Pham Keiser, resolving charges brought against them by NFA's Business Conduct Committee (Committee or BCC).

The BCC Decisions are based on a Complaint issued by the Committee and separate settlement offers submitted by Transamerica and Keiser, in which they neither admitted nor denied the Complaint's allegations. In the Transamerica Decision, the BCC found Transamerica failed to diligently supervise the firm's operations, in violation of NFA Compliance Rule 2-9(a), and ordered Transamerica to pay a $140,000 fine to NFA. In the Keiser Decision, the BCC found Keiser willfully submitted materially false or misleading information to NFA, in violation of NFA Compliance Rule 2-2(f), and ordered Keiser not to reapply for NFA associate membership, apply for NFA membership or principal status with a Member, or act as a principal of a Member at any time in the future.

The complete text of the Complaint, the Transamerica Decision, and the Keiser Decision can be viewed on NFA's website.

September 18, 2023

NFA takes emergency enforcement action against Doral, Fla. commodity pool operator Bit5ive Mining Fund Advisor, LLC and its principal Richard Alexander Acosta

September 18, Chicago—NFA has taken an emergency enforcement action against Bit5ive Mining Fund Advisor, LLC, (Bit5ive Advisor), an NFA Member commodity pool operator located in Doral, Florida, and Richard Alexander Acosta, a listed principal and the sole associated person of Bit5ive Advisor.

NFA took this action to protect participants in Bit5ive Mining Fund LP, a commodity pool operated by Bit5ive Advisor, as well as the investing public, the derivatives markets, and other NFA Members because of Bit5ive Advisor and Acosta's failure to cooperate with NFA. Due to their failure to produce requested documents and information, NFA is unable to determine, among other things, who invested in the Fund, as well as when and how much; whether there are additional investors in the Fund other than those disclosed to NFA; what Bit5ive Advisor and Acosta did with the funds received for investment in the Fund; and the source of funds used to repay one investor.

Effective immediately, Bit5ive Advisor and Acosta are suspended from NFA membership and prohibited from soliciting or accepting any funds for investment in the Fund or in any other pools or other investment vehicles over which Bit5ive Advisor or Acosta exercise control. Bit5ive Advisor and Acosta are further prohibited from disbursing or transferring any funds from any accounts in the name of Bit5ive Advisor, Bit5ive Fund, or from the account of any other commodity pool or other investment vehicle operated by Bit5ive Advisor or Acosta, without NFA's prior approval. This action will remain in effect until Bit5ive Advisor and Acosta demonstrate to NFA's satisfaction that they are in complete compliance with all NFA requirements.

Bit5ive Advisor or Acosta may request a hearing before NFA's Hearing Committee.

The complete text of the emergency action is available on NFA's website.

September 18, 2023

NFA orders Houston-based introducing broker Bosworth Brokers LLC and one of its principals to each pay a $100,000 fine

September 18, Chicago—NFA has ordered Bosworth Brokers LLC, an NFA Member introducing broker located in Houston, Texas, and Andrew Michael Gizienski, a principal and associated person of Bosworth Brokers LLC, to each pay a $100,000 fine.

The Decision, issued by an NFA Hearing Panel, is based on a Complaint authorized by NFA's Business Conduct Committee (BCC) and a settlement offer submitted by Bosworth Brokers LLC, Gizienski and Dennis Michael Bosworth, another principal and AP of Bosworth Brokers LLC, in which they neither admitted nor denied the Complaint's allegations. The BCC Complaint alleged that Bosworth Brokers LLC failed to comply with its recordkeeping obligations under NFA Compliance Rule 2-10 and that Gizienski failed to observe high standards of commercial honor and just and equitable principles of trade under NFA Compliance Rule 2-4, due to Gizienski's use of an unapproved, unmonitored platform to communicate with a Bosworth Brokers LLC customer, which deleted communications after seven days. The Complaint also alleged that Bosworth Brokers LLC failed to promptly list Gizienski as a principal, in violation of NFA Registration Rule 208. Finally, the Complaint alleged that Bosworth Brokers LLC and Bosworth failed to supervise, in violation of NFA Compliance Rule 2-9.

In its Decision, the Panel found that Bosworth Brokers LLC and Bosworth violated NFA Compliance Rule 2-9; that Bosworth Brokers LLC violated NFA Compliance Rule 2-10 and NFA Registration Rule 208; and that Gizienski violated NFA Compliance Rule 2-4.

The complete text of the Complaint and the Decision can be viewed on NFA's website.

September 25, 2023

NFA permanently bars Chicago-based commodity pool operator Tyche Asset Management LLC and its principal Phillip Moncel Galles from membership

September 25, Chicago—NFA has permanently barred Tyche Asset Management LLC, a former NFA Member commodity pool operator (CPO) located in Chicago, Illinois, and Phillip Moncel Galles, a former NFA Associate and principal of Tyche Asset Management LLC, from NFA membership status and from acting or being listed as a principal of an NFA Member.

The default Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and Tyche Asset Management LLC and Galles' failure to file an Answer. The BCC found that Tyche Asset Management LLC and Galles engaged in a deceitful course of conduct to defraud customers and failed to uphold high standards of commercial honor and just and equitable principles of trade in connection with a commodity pool or other investment vehicle that Tyche Asset Management LLC and/or Galles operated. The BCC also found that Tyche Asset Management LLC and Galles provided misleading information to NFA about the firm's activities as a CPO and failed to cooperate promptly with NFA during an examination.

The complete text of the Complaint and Decision can be viewed on NFA's website.

Hot Issue

At the end of September, the SEC continued with its enforcement actions for failing to preserve electronic communications. The SEC’s investigations uncovered pervasive and longstanding off-channel communications at 10 more firms. The firms agreed to pay combined penalties of $79 million. These actions follow on the heels of similar charges against 11 other firms only the previous month that resulted in $289 million in combined penalties.

With the sustained SEC enforcement concerning communications recordkeeping, firms should ensure that they have recently reviewed their communications surveillance policies and procedures, particularly those involving personal mobile devices and messaging applications. In this context, CRC believes that it is more of a question of when – not if – firms will face questions about off-channel communications as part of an examination or other focused requests from the SEC and/or FINRA.

Our Perspective

Regulators continue to demonstrate their commitment to protecting investors by aggressively pursuing bad actors and reviewing and updating regulations to guard investors against constantly evolving threats.

The best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of statements and guidance released by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam. Rather than scrambling to rectify issues or meet deadlines, a thorough, active compliance program that considers and incorporates regulatory developments is in a better position to satisfy regulators and preserve operations so they can best serve their clients.

For more information, please contact:

Mitch Avnet

p. (646) 346-2468

mavnet@compliance-risk.com

David Amster

p. (917) 568-6470

damster@compliance-risk.com

Sources:

FINRA Notices
SEC Regulatory Actions
NFA Notices
NFA New Releases

The post Monthly Regulatory Summary (September 2023) appeared first on Compliance Risk Concepts.

Monthly Regulatory Summary (August 2023)

CRC — Fri, 01 Sep 2023 03:48:26 +0000

FINRA

Regulatory Notices

Per Regulatory Notice 23-12, FINRA has adopted amendments to its Codes of Arbitration Procedure (Codes) to modify the process relating to requests to expunge customer dispute information in the FINRA Dispute Resolution Services (DRS) arbitration forum. The amendments impose requirements on expungement requests (a) filed by an associated person during an investment-related, customer-initiated arbitration (customer arbitration), or filed by a party to the customer arbitration on behalf of an associated person (on-behalf-of request), or (b) filed by an associated person separate from a customer arbitration (straight-in request). The amendments become effective on October 16, 2023. The rule text is available in Attachment A. The Guidance is available in Attachment B. The Form Requesting Expungement on Behalf of an Unnamed Person is available in Attachment C.

Per Regulatory Notice 23-13, FINRA has adopted changes to its rules to allow for video conference hearings before the Office of Hearing Officers and the National Adjudicatory Council under specified conditions. These amendments became effective August 23, 2023.

Per Regulatory Notice 23-14, FINRA has amended the requirements relating to Covered Agency Transactions that FINRA originally adopted in 2016. Covered Agency Transactions include (1) To Be Announced transactions, inclusive of adjustable rate mortgage transactions, (2) Specified Pool Transactions and (3) transactions in Collateralized Mortgage Obligations, issued in conformity with a program of an agency or Government-Sponsored Enterprise, with forward settlement dates, as recapped more fully in this Notice.

This Notice provides an overview of the amendments. The SEC approved the amendments on July 27, 2023. FINRA stated in its rule filing, and the SEC noted in approving the rule change, that the amendments would become effective between nine and ten months following the SEC’s approval. Consistent with this timeframe, the amendments become effective on May 22, 2024. FINRA will monitor the implementation of the amendments and their impact. Prior to the May 22, 2024, effective date, FINRA will engage with market participants to make available updated guidance as appropriate.

The text of the amendments to the Covered Agency Transaction requirements is included as Attachment A. In this Notice, all references to provisions of the amended requirements are to the rule text as shown in Attachment A.

Special Notices

There were no Special Notices in August.

SEC

Final Rules

Per Release No. 34-98202, the SEC is adopting amendments to a rule under the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) that exempts certain SEC-registered brokers or dealers from membership in a registered national securities association (“Association”). The amendments replace rule provisions that provide an exemption for proprietary trading with narrower exemptions from Association membership for any registered broker or dealer that is a member of a national securities exchange, carries no customer accounts, and effects transactions in securities otherwise than on a national securities exchange of which it is a member. The amendments create exemptions for such a registered broker or dealer that effects securities transactions otherwise than on an exchange of which it is a member that result solely from orders that are routed by a national securities exchange of which it is a member to comply with order protection regulatory requirements, or are solely for the purpose of executing the stock leg of a stock-option order.

Per Release No. IA-6383, the SEC is adopting new rules under the Investment Advisers Act of 1940 (“Advisers Act” or “Act”). The rules are designed to protect investors who directly or indirectly invest in private funds by increasing visibility into certain practices involving compensation schemes, sales practices, and conflicts of interest through disclosure; establishing requirements to address such practices that have the potential to lead to investor harm; and restricting practices that are contrary to the public interest and the protection of investors. These rules are likewise designed to prevent fraud, deception, or manipulation by the investment advisers to those funds. Specifically, the new rules require registered investment advisers to private funds to provide transparency to their investors regarding the fees and expenses and other terms of their relationship with private fund advisers and the performance of such private funds. The new rules also require a registered private fund adviser to obtain an annual financial statement audit of each private fund it advises and, in connection with an adviser-led secondary transaction, a fairness opinion or valuation opinion from an independent opinion provider. In addition, the new rules restrict all private fund advisers, including those that are not registered with the SEC, from engaging in certain activities unless they provide specified disclosure to and, for certain restricted activities, obtain consent from investors. All private fund advisers are also prohibited from providing certain types of preferential treatment that would have a material, negative effect on other investors, subject to certain exceptions; and other types of preferential treatment to any investor in a private fund, unless the adviser satisfies certain disclosure obligations. The SEC is adopting corresponding amendments to the Advisers Act books and records rule to facilitate compliance with these new rules and assist our examination staff. Finally, the SEC is adopting amendments to the Advisers Act compliance rule, which affect all registered investment advisers, to better enable SEC staff to conduct examinations.

Proposed Rules

Per Release No. IA-6384, the SEC is reopening the comment period for its proposal, Safeguarding Advisory Client Assets, Release No. IA-6240 (Feb. 15, 2023) (“Proposal”), which proposed a new rule under the Investment Advisers Act of 1940 (“Advisers Act” or “Act”) that would redesignate and amend the current custody rule. In light of the adoption of the private fund adviser audit rule, which generally requires a registered investment adviser to obtain an annual financial statement audit of each private fund it advises in accordance with the audit provision of the current custody rule, reopening the comment period will allow interested persons additional time to assess the proposed amendments to the current custody rule’s audit provision in light of the private fund adviser audit rule.

Interim Final Rules

There were no interim final rules in August.

Interpretive Releases

There were no interpretive releases in August.

Policy Statements

There were no policy statements in August.

NFA

Notices to Members

There were no NFA Notices to Members in August.

News Releases

There were no NFA news releases in August.

Hot Issue

In August, the SEC continued with its enforcement actions against broker-dealers for failing to preserve electronic communications. According to the SEC, this brings the total to 30 enforcement actions and $1.5 billion in penalties. In what is becoming a familiar script, the firms admitted that their employees (including supervisors and executives) often communicated through various messaging platforms on personal devices about the business of their employers, which were often not preserved in violation of federal securities laws. The SEC’s sustained enforcement activity in this area strongly suggests that firms should not delay taking the initiative to conduct meaningful reviews of their communication practices, policies and procedures.

Our Perspective

For more information, please contact:

Mitch Avnet

p. (646) 346-2468

mavnet@compliance-risk.com

David Amster

p. (917) 568-6470

damster@compliance-risk.com

Sources:

FINRA Notices
SEC Regulatory Actions
SEC Press Release 2023-149

The post Monthly Regulatory Summary (August 2023) appeared first on Compliance Risk Concepts.

Monthly Regulatory Summary (July 2023)

CRC — Tue, 01 Aug 2023 03:33:07 +0000

FINRA

Regulatory Notices

There were no Regulatory Notices in July.

Special Notices

There were no Special Notices in July.

SEC

Final Rules

Per Release No. 33-11211, the SEC is adopting amendments to certain rules that govern money market funds under the Investment Company Act of 1940. These amendments are designed to improve the resilience and transparency of money market funds. The amendments will revise the primary rule that governs money market funds to remove the ability for a fund board to temporarily suspend redemptions if the fund’s liquidity falls below a threshold. In addition, the amendments will remove the tie between liquidity thresholds and the potential imposition of liquidity fees. The amendments will also require certain money market funds to implement a liquidity fee framework that will better allocate the costs of providing liquidity to redeeming investors. In addition, the SEC is increasing the daily liquid asset and weekly liquid asset minimum requirements to 25% and 50%, respectively. The SEC also is amending certain reporting requirements on Form N-MFP and Form N-CR and making certain conforming changes to Form N-1A to reflect amendments to the regulatory framework for money market funds. In addition, the SEC is addressing how money market funds with stable net asset values may handle a negative interest rate environment, including by adopting amendments that will permit these funds to use share cancellation, subject to certain conditions. Further, the SEC is adopting rule amendments to specify how funds must calculate weighted average maturity and weighted average life. In addition, the SEC is adopting amendments to Form PF concerning the information large liquidity fund advisers must report for the liquidity funds they advise. Finally, the SEC is adopting two technical amendments to Form N-CSR and Form N-1A to correct errors from recent Commission rulemakings.

Per Release No. 33-11216, the SEC is adopting new rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incidents by public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934. Specifically, the SEC is adopting amendments to require current disclosure about material cybersecurity incidents. The SEC is also adopting rules requiring periodic disclosures about a registrant’s processes to assess, identify, and manage material cybersecurity risks, management’s role in assessing and managing material cybersecurity risks, and the board of directors’ oversight of cybersecurity risks. Lastly, the final rules require the cybersecurity disclosures to be presented in Inline eXtensible Business Reporting Language (“Inline XBRL”).

Proposed Rules

Per Release No. 34-97877, the SEC proposes to amend the broker-dealer customer protection rule to require certain broker-dealers to perform their customer and broker-dealer reserve computations and make any required deposits into their reserve bank accounts daily rather than weekly. The SEC also is seeking comment on whether similar daily reserve computation requirements should apply to broker-dealers and security-based swap dealers with respect to their security-based swap customers.

Comments should be received on or before September 11, 2023.

Per Release No. 34-97990, the SEC is proposing new rules (“proposed conflicts rules”) under the Securities Exchange Act of 1934 (“Exchange Act”) and the Investment Advisers Act of 1940 (“Advisers Act”) to eliminate, or neutralize the effect of, certain conflicts of interest associated with broker-dealers’ or investment advisers’ interactions with investors through these firms’ use of technologies that optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes. The SEC is also proposing amendments to rules under the Exchange Act and Advisers Act that would require firms to make and maintain certain records in accordance with the proposed conflicts rules.

The public comment period will remain open until 60 days after the date of publication of the proposing release in the Federal Register.

Per Release No. IA-6354, the SEC is proposing amendments to the rule under the Investment Advisers Act of 1940 that exempts certain investment advisers that provide advisory services through the internet (“internet investment advisers”) from the prohibition on Commission registration, as well as related amendments to Form ADV. The proposed amendments are designed to modernize the rule’s conditions to account for the evolution in technology and the investment advisory industry since the adoption of the rule.

The public comment period will remain open until 60 days after the date of publication of the proposing release in the Federal Register.

Interim Final Rules

There were no interim final rules in July.

Interpretive Releases

There were no interpretive releases in July.

Policy Statements

There were no policy statements in July.

NFA

Notices to Members

Notice I-23-14

July 10, 2023

FCM and IB Members—FinCEN updates its list of FATF-identified jurisdictions with AML/CFT deficiencies

On June 29, 2023, the Financial Crimes Enforcement Network (FinCEN) issued a news release informing U.S. financial institutions of the Financial Action Task Force's (FATF) recent public statement. The statement reiterates that all jurisdictions should be vigilant of current and emerging risks from the circumvention of measures taken against the Russian Federation in order to protect the international financial system. The release also announced that the FATF reissued its list of jurisdictions with strategic AML/CFT deficiencies. NFA Member futures commission merchants (FCM) and introducing brokers (IB) should review this release to ensure that their AML programs have the most current information on FATF-identified jurisdictions with AML/CFT deficiencies and revise their AML programs accordingly. A copy of the news release is available on FinCEN's website.

Notice I-23-15

July 25, 2023

Effective date for repeal of NFA Interpretive Notice regarding reduced NFA assessment fee for diminutive notional value-designated contracts

NFA recently repealed its Interpretive Notice entitled NFA Bylaw 1301(b): NFA's Assessment Fee-Diminutive Notional Value Contracts and Security Futures Products, to eliminate the reduced assessment fee for security futures products (SFP) and diminutive notional value (DNV)-designated contracts. This action becomes effective on January 1, 2024, at which time DNV-designated contracts¹ will be subject to the assessment fee under NFA Bylaw 1301. The fee is currently $.04 per round turn. NFA's Board of Directors unanimously approved this repeal after concluding that NFA's regulatory oversight costs are the same for DNV-designated contracts as they are for other exchange traded futures products, and therefore the assessment fee should be the same.

News Releases

There were no NFA news releases in July.

Hot Issue

Broker-dealers and Investment Advisers, particularly FinTech firms, should monitor the SEC’s recent proposed rulemaking around conflicts of interest and predictive data analytics. Although any final rule would likely incorporate some changes resulting from public comments, the rule proposal demonstrates the SEC’s intent to build upon existing regulatory protections to address conflicts of interest from the use of artificial intelligence, predictive data analytics, or similar technologies in investor interactions. Firms that use or plan to use such technologies may want to begin planning for review of its processes for the purposes of identifying and evaluating potential conflicts of interest between the firm and its customers resulting from its use of predictive technologies. Such proactive steps will position firms to better gauge any potential impact to its business operations as the rulemaking proceeds.

Our Perspective

For more information, please contact:

Mitch Avnet

p. (646) 346-2468

mavnet@compliance-risk.com

David Amster

p. (917) 568-6470

damster@compliance-risk.com

Sources:

SEC Regulatory Actions
NFA Notice to Members

The post Monthly Regulatory Summary (July 2023) appeared first on Compliance Risk Concepts.

The Impact of Reg BI with Mitch Avnet: CEO and Managing Partner of Compliance Risk Concepts.

CRC — Tue, 23 Jul 2019 18:22:43 +0000

On June 5, 2019 the Securities and Exchange Commission (“SEC”) voted to enhance the regulatory framework standard of conduct for broker-dealers (or “firms”) and provide an interpretation of the fiduciary duty for investment advisers by issuing Regulation Best Interest (“Reg BI”). Hearsay recently reached out to Mitch Avnet of Compliance Risk Concepts (“CRC”) to discuss the impacts of the new regulation.

Transition period, comparison to DOL Fiduciary Rule and overview of Reg BI

Chris Fernandes: What does the transition period look like for compliance with Reg BI?

Mitch Avnet: The SEC is allowing firms a transition period until the June 30, 2020 compliance date.

Chris: How does this new regulation compare to the long-anticipated Department of Labor (“DOL”) Fiduciary Rule?

Mitch: The Reg BI framework is more expansive than the vacated DOL Fiduciary Rule, as it covers all securities investment recommendations to retail customers rather than just those for retirement accounts. By setting out specific obligations of broker-dealers and investment advisers, the SEC is seeking to tailor requirements to the different types of products and services each provide in order to preserve customer choice in the industry.

Chris: So, it is more complex. Does it place an increased burden on firms?

Mitch: Reg BI sets out new rules which will increase compliance efforts for firms but provides a more uniform standard and does not include many of the onerous aspects of the DOL rule such as a private right of action.

Chris: Could you give a high-level overview of the framework of the rule?

Mitch: Absolutely. The regulation has five principal areas, and can be broken down as follows:

A “best interest” standard comprising four obligations for broker-dealers when providing recommendations to retail customers (Regulation Best Interest or Reg BI);
A required client relationship summary disclosure (Form CRS) for both broker-dealers and investment advisers;
An interpretation of the federal fiduciary standard for investment advisers that would reaffirm their fiduciary obligations; and
An interpretation clarifying that broker-dealers that provide advisory services are not considered to be investment advisors when such services are “solely incidental” to the conduct of their business.
Reg BI and Form CRS have a compliance date of June 30, 2020 while the interpretations will become effective upon publication in the Federal Register.

Requirements, disclosures and compliance for broker-dealers, under Reg BI

Chris: Let’s dig a bit deeper into what is required of broker-dealers under the rule.

Mitch: Reg BI consist of four obligations for broker-dealers when providing recommendations to retail customers. However, Reg BI does not expressly define “best interest.” Instead, it states that broker-dealers must act “without placing the financial or other interest of the broker ahead of the interest of the retail customer.” The SEC has made clear that the term does not create a fiduciary obligation and explains that it will determine whether a broker-dealer has acted in their customers’ best interest based on the four obligations: (1) disclosure, (2) care, (3) conflict of interest and (4) compliance.

Chris: Reg BI imposes an obligation to provide a 2-page relationship summary to clients. Can you provide additional details on what firms can expect this to entail?

Mitch: Broker-dealers are required to provide Form CRS, which is in a question and answer format, to clients. Disclosures must contain a summary of fees, costs, conflicts, and standards of conduct along with a link to the SEC’s Investor.gov site.

Chris: When are these disclosures supposed to go out?

Mitch: The timing of the disclosure varies. For broker dealers, firms should be distributing these to clients before a recommendation of an account type, a securities transaction, or an investment strategy involving securities or placing an order for the retail investor. These disclosures should also go out prior to the opening of a brokerage account for the retail investor. For investment advisers, the disclosures should be distributed prior to or at the time of entering into the advisory contract. Dual registrants should use the earliest of the deadlines imposed under requirements for BDs and RIAs.

Chris: Are there any other times throughout the client relationship when firms need to provide additional disclosures under the rule?

Mitch: Yes; firms must provide additional disclosures when they: open a new account that is different from the retail investor’s existing account(s); recommend that the retail investor roll over assets from a retirement account into a new or existing account or investment; or recommend or provide a new brokerage or investment advisory service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account (e.g., securities sold through a “check and application” process).

Chris: What should firms be doing to comply with this part of the rule?

Mitch: CRC recommends firms review their current customer agreements and disclosures to determine what changes will need to be made and involve technology teams to consider potential digital solutions. We also recommend a cross-functional team of business, compliance and operational employees work together to confirm disclosure of all material facts pertinent to a conflict of interest associated with the recommendation that are “full and fair.”

Chris: Let’s talk about the duty of care.

Mitch: Firms will have an obligation to provide reasonable “diligence, care, and skill” to satisfy three obligations: reasonable-basis, customer-specific and quantitative. Additionally, firms must evaluate reasonably available alternatives, however broker-dealers will not have to evidence review of all alternatives. Similar to the DOL fiduciary rule, Reg BI’s care obligation covers recommendations concerning rollovers and account choice (e.g., brokerage or advisory), as well as those to take a retirement plan distribution for purposes of opening a securities trading account.

Chris: What should firms be doing to start on the path to compliance relative to this aspect of the rule?

Mitch: Our team recommends that firms dust off work done during their DOL Fiduciary Rule prep. Because the rule is not prescriptive, there is no “one size fits all” model for compliance. The compliance obligation requires firms to maintain policies and procedures to ensure compliance with Reg BI. It’s important to note, this obligation provides an opportunity for the SEC and FINRA to bring enforcement actions for compliance failures without the existence of underlying violations of Reg BI. Therefore, firms should carefully develop Reg BI policies and procedures with a view towards how they will demonstrate that they have met the best interest standard – including documenting all written and oral disclosures to clients.

Conflicts of Interest

Chris: What specific conflicts of interest should firms focus on when attempting to comply with that obligation?

Mitch: Reg BI does not explicitly define material conflicts of interest. In contrast to the DOL rule, Reg BI allows firms to sell proprietary products, including initial public offerings, and continue to receive payments from third parties for shelf space – as long as they disclose conflicts of interest. For example, in instances where a registered representative holds a limited license (e.g., only to sell mutual funds), but the firm offers a full suite of products, the representative may need to disclose this to their customers. However, the final rule makes clear that there are certain conflicts of interest that cannot be cured through disclosure, specifically prohibiting certain types of sales contests and quotas within defined parameters (e.g., for specific security types in short time periods).

Chris: Where would you recommend that firms focus their energies relative to this aspect?

Mitch: Our team at CRC recommends that firms review their range of products and services they offer along with their payout grid in order to identify potential conflicts and determine whether they will need to be mitigated, eliminated, or disclosed. The final rule also instructs firms to develop a penalty system for any representatives that do not adequately manage or disclose their conflicts of interest. Firms will need to establish, maintain, and enforce written policies and procedures reasonably designed to:

Identify and at a minimum disclose (in accordance with the Disclosure Obligation) or eliminate all conflicts of interest associated with the recommendation
Identify and mitigate conflicts of interest that create an incentive for a broker-dealer’s financial professionals to place either their interests or the broker-dealer’s interest ahead of the retail customer’s interest
Identify and disclose any material limitations on offerings (e.g., proprietary or other limited range of products) and any conflicts associated with the limitations, and prevent the limitations and associated conflicts from causing the broker-dealer or its financial professionals to place their interests ahead of the retail customer’s interests
Eliminate sales contests, sales quotas, bonuses, and non-cash compensation based on the sale of specific securities or specific types of securities within a limited period of time

SEC expectations and compliance

Chris: Can you map out the SEC’s expectation for compliance procedures relative to the rule?

Mitch: Reg BI requires firms to develop policies and procedures in order to demonstrate that they have met the best interest standard – including documenting all written and oral disclosures to clients. The SEC has made changes to Rules 17a-3 and 17a-4, which require broker-dealers to maintain records of all information collected and provided to retail customers pursuant to Reg BI for six years, including the identity of each natural person who is an associated person of the broker-dealer responsible for the customer accounts. Firms that fail to maintain adequate policies and procedures may face enforcement actions from the SEC and FINRA for compliance failures.

Chris: How should firms seek to comply?

Mitch: CRC advises firms to review and enhance their policies and procedures that address: Product and Pricing; Operations; Technology; and Communications. Additionally, firms should put in place processes to capture and retain disclosures, provide training on the new requirements and ensure that there is a supervisory structure to oversee compliance.

Is Reg BI different for Investment Advisors?

Chris: Are there any specific issues that investment advisers should consider? Are they impacted differently than broker-dealers?

Mitch: While investment advisers have an existing fiduciary obligation, the SEC’s investment adviser interpretation of Reg BI makes these obligations explicit:

Provide advice in the best interest of the client
A duty of loyalty
Best execution for client transactions
Disclosure of conflicts of interest

Because the final rule did not include enhancements contained in the proposal, investment advisor are not likely to require significant analysis or operational changes as those for broker-dealers, e.g. – licensing and continuing education requirements, provision of account statements to clients and similar financial responsibility requirements.

Exemptions

Chris: How would a broker-dealer qualify for an exemption under the rule?

Mitch: To qualify for an exemption from the Advisers Act (“the Act”), broker-dealers must satisfy 2 conditions: they must not receive any special compensation (i.e., only commissions and not asset-based fees, and must provide only “solely incidental” advice.

Chris: How should firms identify whether advice provided to retail clients is incidental?

Mitch: Determining whether advice provided to retail clients is “solely incidental” will be determined by 2 criteria: level of investment discretion and account monitoring. Unlimited investment discretion is not solely incidental advice and the broker-dealer would be subject to the Act. If investment discretion is limited in time, scope, or some other way the advice provided may be deemed solely incidental. In addition, continuous, previously agreed-upon account monitoring would likely not be considered solely incidental, while periodic account monitoring or voluntary account monitoring likely would be.

The SEC also clarified the solely incidental exception under the Advisers Act: broker-dealers do not have a fiduciary duty to a retail investor unless that broker-dealer is exercising unlimited investment discretion with respect to the account, or the broker-dealer has agreed to continuous monitoring of the account.

State regulations

Chris: What about state regulators? How do they factor into this rule?

Mitch: After the DOL rule was vacated, a number of states began to introduce their own fiduciary or best interest standards. These rules vary across states – some states like Nevada, are contemplating a private right of action and a largely ongoing obligation. Others states like New York would only apply a best interest standard to the sale of life insurance annuities. These differences will make it operationally challenging for firms to adhere to each state’s specific requirements.

Chris: Has the SEC commented on this issue?

Mitch: Currently, the SEC declined to provide any opinion on whether its rules would preempt state standards and left the question to “future judicial proceedings.”

The industry can likely expect litigation on this issue as states continue to move forward with their rulemakings and attempt to retain control over standards in their jurisdictions. Meanwhile, the DOL has stated that it will issue an updated version of its fiduciary rule later this year. While there have not been any explicit assurances, it is likely that the concepts and requirements from the DOL will align with Reg BI.

Client behavior

Chris: Finally, do you have any insight into concerns that firms have regarding broker-dealers’ responsibilities under this rule, particularly with respect to client behavior?

Mitch: It is important to remember that Reg BI does not render a BD or IA responsible for a client’s behavior or choices, provided that all above mentioned criteria are satisfied. Reg BI does not extend beyond a particular recommendation or generally require a broker-dealer to have a continuous duty to a retail customer or impose a duty to monitor. The rule also doesn’t require the broker-dealer to refuse to accept a customer’s order that is contrary to the broker-dealer’s recommendation or apply to self-directed or otherwise unsolicited transactions by a retail customer, whether or not the customer also receives separate recommendations from the broker-dealer.

Chris: Thank you for taking the time to answer our questions and provide insight on some of the key components of Reg BI.

Mitch: My pleasure, as always. The CRC team is readily available to discuss relevant regulatory issues with our clients and colleagues in the industry, and we make it our top priority to keep our thumb on the pulse of the ever-evolving regulatory landscape so that we can provide accurate, up-to-date advice.

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Regulation Best Interest

CRC — Mon, 15 Jul 2019 16:18:35 +0000

On June 5, 2019 the Securities and Exchange Commission (“SEC”) voted to enhance the regulatory framework standard of conduct for broker-dealers (or “firms”) and provide an interpretation of the fiduciary duty for investment advisers by issuing Regulation Best Interest (“Reg BI”). The SEC is giving firms a transition period until June 30, 2020.

Reg BI framework is more expansive than the vacated Department of Labor (“DOL”) fiduciary rule as it covers all securities investment recommendations to retail customers rather than just those for retirement accounts. By setting out specific obligations of broker-dealers and investment advisers, the SEC is seeking to tailor requirements to the different types of products and services each provide in order to preserve customer choice in the industry. Reg BI sets out new rules which will increase compliance efforts for firms but provides a more uniform standard and does not include many of the onerous aspects of the DOL rule such as a private right of action.

The framework includes:

A “best interest” standard comprising four obligations for broker-dealers when providing recommendations to retail customers (Regulation Best Interest or Reg BI);
A required client relationship summary disclosure (Form CRS) for both broker-dealers and investment advisers;
An interpretation of the federal fiduciary standard for investment advisers that would reaffirm their fiduciary obligations; and
An interpretation clarifying that broker-dealers that provide advisory services are not considered to be investment advisors when such services are “solely incidental” to the conduct of their business.
Reg BI and Form CRS have a compliance date of June 30, 2020 while the interpretations will become effective upon publication in the Federal Register.

Reg BI consist of four obligations for broker-dealers when providing recommendations to retail customers. Reg BI does not expressly define “best interest,” instead stating that broker-dealers must act “without placing the financial or other interest of the broker ahead of the interest of the retail customer.” However, the SEC makes clear that the term does not create a fiduciary obligation and explains that it will determine whether a broker-dealer has acted in their customers’ best interest based on the four obligations: (1) disclosure, (2) care, (3) conflict of interest and (4) compliance.

Disclosure – Reg BI imposes an obligation on to provide a 2-page relationship summary (Form CRS) to clients in a question and answer format. Disclosures must contain a summary of fees, costs, conflicts, and standards of conduct along with alink to the SEC’s Investor.gov site.

The timing of the disclosure varies as following:

Broker-dealer: before or at the earliest of: (i) a recommendation of an account type, a securities transaction, or an investment strategy involving securities, (ii) placing an order for the retail investor, or (iii) the opening of a brokerage account for the retail investor
Investment adviser: before or at the time of entering into an advisory contract
Dual registrant: at earlier of investment adviser or broker-dealer delivery requirement

In addition, firms must provide additional disclosures when they:

Open a new account that is different from the retail investor’s existing account(s)
Recommend that the retail investor roll over assets from a retirement account into a new or existing account or investment
Recommend or provide a new brokerage or investment advisory service or investment that does not necessarily involve the opening of a new account and would not be held in an existing account (e.g., securities sold through a “check and application” process)

So what does this mean: CRC recommends firms review their current customer agreements and disclosures to determine what changes will need to be made and involve technology teams to consider potential digital solutions. CRC also recommends a cross-functional team of business, compliance and operational employees work together to confirm disclosure of all material facts pertinent to a conflict of interest associated with the recommendation that are “full and fair”.

Care – Firms will have an obligation to provide reasonable “diligence, care, and skill” to satisfy three obligations: reasonable-basis, customer-specific and quantitative. Additionally, firms must evaluate reasonably available alternatives, however broker-dealers will not have to evidence review of all alternatives. Similar to the DOL fiduciary rule, Reg BI's care obligation covers recommendations concerning rollovers and account choice (e.g., brokerage or advisory), as well as those to take a retirement plan distribution for purposes of opening a securities trading account.

So what does this mean: We recommend firms dust off work done during their DoL fiduciary rule prep. Because the rule is not prescriptive, there is no “one size fits all” model for compliance. The compliance obligation requires firms to maintain policies and procedures to ensure compliance with Reg BI. Notably, this obligation provides an opportunity for the SEC and FINRA to bring enforcement actions for compliance failures without the existence of underlying violations of Reg BI. Therefore, firms should carefully develop Reg BI policies and procedures with a view towards how they will demonstrate that they have met the best interest standard - including documenting all written and oral disclosures to clients.

Conflict – Reg BI does not explicitly define material conflicts of interest. In contrast to the DOL rule, Reg BI allows firms to sell proprietary products, including initial public offerings, and continue to receive payments from third parties for shelf space – as long as they disclose conflicts of interest. For example, in instances where a registered representative holds a limited license (e.g., only to sell mutual funds), but the firm offers a full suite of products, the representative may need to disclose this to their customers. However, the final rule makes clear that there are certain conflicts of interest that cannot be cured through disclosure, specifically prohibiting certain types of sales contests and quotas within defined parameters (e.g., for specific security types in short time periods).

So what does this mean: CRC recommends firms review their range of products and services they offer along with their payout grid in order to identify potential conflicts and determine whether they will need to be mitigated, eliminated or disclosed^[1]. The final rule also instructs firms to develop a penalty system for any representatives that do not adequately manage or disclose their conflicts of interest. Firms will need to establish, maintain, and enforce written policies and procedures reasonably designed to:

Identify and at a minimum disclose (in accordance with the Disclosure Obligation) or eliminate all conflicts of interest associated with the recommendation
Identify and mitigate conflicts of interest that create an incentive for a broker-dealer’s financial professionals to place either their interests or the broker-dealer’s interest ahead of the retail customer’s interest
Identify and disclose any material limitations on offerings (e.g., proprietary or other limited range of products) and any conflicts associated with the limitations, and prevent the limitations and associated conflicts from causing the broker-dealer or its financial professionals to place their interests ahead of the retail customer’s interests
Eliminate sales contests, sales quotas, bonuses, and non-cash compensation based on the sale of specific securities or specific types of securities within a limited period of time

Compliance – Reg BI requires firms to develop policies and procedures in order to demonstrate that they have met the best interest standard - including documenting all written and oral disclosures to clients. The SEC has made changes to Rules 17a-3 and 17a-4, which require broker-dealers to maintain records of all information collected and provided to retail customers pursuant to Reg BI for six years, including the identity of each natural person who is an associated person of the broker-dealer responsible for the customer accounts. Firms that fail to maintain adequate policies and procedures may face enforcement actions from the SEC and FINRA for compliance failures.

So what does this mean: CRC advises firms to review and enhance their policies and procedures that address: Product and Pricing; Operations; Technology; and Communications. Additionally, firms should put in place processes to capture and retain disclosures, provide training on the new requirements and ensure that there is a supervisory structure to oversee compliance.

Investment Advisers – While investment advisers have an existing fiduciary obligation, the SEC’s investment adviser interpretation of Reg BI makes these obligations explicit:

Provide advice in the best interest of the client
A duty of loyalty
Best execution for client transactions
Disclosure of conflicts of interest

Because the final rule did not include enhancements contained in the proposal, investment advisor are not likely to require significant analysis or operational changes as those for broker-dealers, e.g. - licensing and continuing education requirements, provision of account statements to clients and similar financial responsibility requirements.

Determining whether broker-dealers’ advice provided to retail clients is “solely incidental” will be determined by 2 criteria:

Level of investment discretion
Unlimited investment discretion is not solely incidental advice and the broker-dealer would be subject to the Act
If investment discretion is limited in time, scope, or some other way the advice provided may be deemed solely incidental
Account monitoring
Continuous, previously agreed-upon account monitoring would likely not be considered solely incidental
Periodic account monitoring or voluntary account monitoring would likely be considered solely incidental

So what does this mean: Investment advisers should be aware that the SEC is continuing to evaluate these enhancements and may add them in the future. The SEC also clarified the solely incidental exception under the Advisers Act: broker-dealers do not have a fiduciary duty to a retail investor unless that broker-dealer is exercising unlimited investment discretion with respect to the account, or the broker-dealer has agreed to continuous monitoring of the account

To qualify for an exemption from the Advisers Act (“the Act”), broker-dealers must satisfy 2 conditions:

Receive no special compensation (i.e., only commissions and not asset-based fees)
Provide only “solely incidental” advice

DoL and States – After the DOL rule was vacated, a number of states began to introduce their own fiduciary or best interest standards. These rules vary across states – some states like Nevada, are contemplating a private right of action and a largely ongoing obligation. Others states like New York would only apply a best interest standard to the sale of life insurance annuities. These differences will make it challenging operationally for firms to adhere to each state’s specific requirements. The SEC declined to provide any opinion on whether its rules would preempt state standards and left the question to “future judicial proceedings.”

So what does this mean: The industry can likely expect litigation on this issue as states continue to move forward with their rulemakings and attempt to retain control over standards in their jurisdictions. Meanwhile, the DOL has stated that it will issue an updated version of its fiduciary rule later this year. While there have not been any explicit assurances, it is likely that the concepts and requirements from the DOL will align with Reg BI.

Not applicable – Equally as important, Reg BI will not:

Extend beyond a particular recommendation or generally require a broker-dealer to have a continuous duty to a retail customer or impose a duty to monitor^[2];
Require the broker-dealer to refuse to accept a customer’s order that is contrary to the broker-dealer’s recommendation; or
Apply to self-directed or otherwise unsolicited transactions by a retail customer, whether or not the customer also receives separate recommendations from the broker-dealer.

^[1] Firms can use the FINRA Report on Conflicts of Interest as guidance in managing, mitigating and eliminating conflicts of interest in their businesses.

^[2] It is the SEC’s position that when a broker-dealer agrees with a retail customer to provide account monitoring services: (1) the broker-dealer would be required to disclose the material facts, scope and frequency of those services pursuant to the Disclosure Obligation, and (2) such agreed-upon account monitoring services involve an implicit recommendation to hold (i.e., an implicit recommendation not to buy, sell, or exchange assets pursuant to that securities account review) at the time agreed-upon monitoring occurs, which is a recommendation “of any securities transaction or investment strategy involving securities” covered by Reg BI.

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Investment Advisers 2018 Regulatory Review and 2019 Outlook

Kaitlyn Gibbs — Wed, 13 Feb 2019 23:01:59 +0000

With 2018 in the rear-view mirror and 2019 underway, we find ourselves in a position to look back across the regulatory landscape on what transpired over the course of last year in an effort to anticipate what this New Year may bring for Investment Advisers.

For those who are pressed for time, we've narrowed down the bare necessities into this 2 minute Fast Facts video, press play and enjoy!

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Mitigate the Risk: Best Practices for Employee, Client and Third Party Due Diligence in the Financial Services Industry

Melissa Kluttz — Tue, 10 Jul 2018 12:25:50 +0000

Hiring the right talent, maintaining accountability for those you hire, and managing through the complex regulatory landscape has never been more important – and more challenging- for financial institutions. Compliance Risk Concepts (CRC) partnered with Sterling Talent Solutions, a leader in global background screening, to publish the white paper, “Employee, Client and Third Party Due Diligence: The Cost of Ineffective Monitory Procedures.” We share the importance for the financial services industry to have the correct ongoing due diligence procedures in place for new hires, clients, third-party partnerships, and vendor relationships. Operating with stale knowledge makes you vulnerable to increased operational and reputational risk, as well as potentially exposing client and firm resources and information to fraud and misappropriation.
The Financial Services Sector is Highly Regulated
Due Diligence is a fiber that is woven throughout the entire regulatory landscape, impacting various areas, including, but not limited to, cybersecurity, information security, custody, and books and records. Many of the agencies that govern the financial services sector, such as Financial Industry Regulatory Authority (FINRA), the Securities and Exchange Commission (SEC) and the Foreign Corrupt Practices Act (FCPA), require stringent due diligence procedures.

Employee and Registered Representative Due Diligence Best Practices
When onboarding new hires and registered representatives, firms should obtain and verify information such as an individual’s education and work history, industry qualifications and certifications, criminal background checks and fingerprinting, credit checks, disciplinary information and outside business activities, among other things.

Businesses who operate in the financial sector should use a reputable FCRA compliant background screening vendor or follow up and confirm all screening information that they receive from new hires and reps to ensure its accuracy. Firms should implement ongoing screening processes and disclosure monitoring that cover a nuanced array of areas outside business activities, political contributions donor lists and ongoing credit checks among other things. Firms need to be sure that they are capturing the whole picture when it comes to reps and employees by screening professional and financial information as well as continuing criminal background checks.

Three factors that financial businesses should consider when performing due diligence for employees are:

Data Collection: Businesses should develop a comprehensive process that will result in a detailed risk profile per individual.
Monitoring: Companies should have ongoing monitoring tools which utilize comprehensive data points which can screen for factors that traditional monitoring might miss, such as criminal activity, liens and judgments.
Verification: Organizations should have procedures in place to verify the information that is provided during data collection and monitoring process. Information should be reviewed from a variety of sources.

Client Due Diligence
Due diligence should be performed across the board. Reviewing clients is important to minimize risk. Under the Financial Crimes Enforcement Network’s (FinCEN’s) new Client Due Diligence rule, which went into effect on 5/11/2018, financial institutions should have Anti-Money Laundering (AML) processes already in place. Such procedures, as with Counterparty and Firm Representative Due Diligence, protect the organization’s reputation, limit exposure to litigation, fines or enforcement actions, and mitigate the risk of exposing client information and funds to fraud.
Regulators currently expect that financial institutions obtain customer information at account inception, compose a customer risk profile, and use this profile during ongoing monitoring to identify potential red flags. The rule focuses on five principles:

Identification and Verification
Ownership and Control
Exemptions
Certification Form
Updating UBO Information for Existing Customers

Third Party and Vendor Due Diligence
Standardization is key when counterparty due diligence is concerned. Companies should strive to implement repeatable procedures for due diligence that include drafting standard vendor and third party due to diligence questionnaires, anti-money laundering checks, employee training, a multi-level approval process that leverages Compliance Department and adherence appropriate record-keeping practices. Financial institutions should use not the same but similar review practices, questionnaires, and recordkeeping practices for all applicable vendors and intermediaries to mitigate the risk of missing material information from even seemingly innocuous vendors, counterparties or relationships.

It’s no longer the case that vendors can be approved and be permanently classified as low-risk or “approved.” Vendors and counterparties must be engaged and performing, and constantly reviewed by the firm to confirm that they still meet initial criteria and that Due Diligence Questionnaires (DDQs) have been updated to account for any new concerns or regulatory implications.

Reputational and Operational Risks of Inadequate Due Diligence
While counterparty relationships are critical for the growth of an organization, they also expose it to various risks, including bribery, corruption, organized crime, money laundering or fraud. Non-compliance with anti-bribery and corruption and KYC/AML regulations, inadequate, or inappropriate due diligence processes can expose businesses to enforcement actions and fines, negative press and reputational damage, criminal penalties, sanctions against firms and covered individuals, and time wasted dealing with investigations and remediation. Continual monitoring, risk assessment and review of information are imperative to protect a business’s assets and personally to identify information.

Download Due Diligence White Paper

Submit the form below to receive your complimentary copy of the Employee, Client and Third Party Due Diligence: The Cost of Ineffective Monitory Procedures white paper and learn practical steps and best practices to mitigate the risk for employee, client, third party and vendor due diligence rules in the financial services industry.

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About Sterling Talent Solutions
Sterling Talent Solutions helps the world’s top banks, brokerage houses, private equity firms, insurance companies and other financial services firms efficiently screen and hire top talent while maintaining stringent compliance standards.

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ADV Regulatory Changes For Investment Advisers

portia — Mon, 25 Sep 2017 18:09:04 +0000

On October 1, 2017, regulatory changes go into effect for investment advisers. The amended Form ADV will require investment advisers to expand the information they report on Form ADV about separately managed accounts and other important aspects of their advisory business. The SEC also adopted a number of other amendments to the Form ADV and certain rules under the Investment Advisers Act of 1940 that include permitting consolidated investment adviser registrations for certain private fund advisers that operate a single advisory business through multiple entities, amending the Advisers Act books and records rule to require investment advisers to maintain additional information supporting performance claims, and making certain other clarifying and technical amendments to the Form ADV and Advisers Act rules.

Investment advisers are not required to revise and file their Form ADV on that date solely to reflect the changes. Instead, an investment adviser will be required to use the new Form, and provide all of the newly requested information, in any initial filing or amendment of its Form on or after October 1, 2017. As a practical matter, investment advisers will generally not use the new Form until filing their next annual updating amendments (January 1, 2018 and April 2, 2018 (March 31, 2018 is a Saturday) or until they are filing an other-than-annual amendment due to material changes.

Compliance Risk Concepts suggest that investment advisers review the new requirements in detail to ensure that if an earlier amendment must be made, the required information can be gathered in a timely manner.

Highlights of the Form changes and material changes that would require filing an other-than-annual amendment are outlined below. In addition, a PDF version of the new Form ADV can be downloaded by clicking here. This highlights in yellow, section by section and question by question the changes that were made to the ADV. Those changes are indicated in the color red.

CLICK TO VIEW & DOWNLOAD

As always, Compliance Risk Concepts is available to answer any questions regarding these changes or assist your firm with the completion of the amended Form.

Highlights of the amendments to Form ADV include the following:

Umbrella Registration for Private Fund Managers: The revised Form includes instructions and a new schedule (Schedule R) for the reporting of relying advisers.
Separately Managed Accounts: The revised Form requires disclosure regarding separately managed accounts. Separately managed accounts are those advisory accounts over which an investment adviser has continuous and regular supervisory authority (and therefore that count towards “regulatory assets under management”) that are not pooled investment vehicles.
Other: The revised Form also now requires new or additional information regarding (among others):
- the breakdown of “regulatory assets under management” among categories of clients;
- accounts on social media platforms (including, but not limited to, Twitter, Facebook and LinkedIn);
- branch offices;
- parallel managed accounts; and
- outsourced chief compliance officers.

Books and Records Rule Amendments (Look out for an additional memo regarding this rule change)

The amendments to the books and records rule will now require registered investment advisers to maintain the following:

the records listed in SEC Rule 204-2(a)(16) supporting performance claims in communications that the investment adviser circulates or distributes, directly or indirectly, to any person (as opposed to the current rule, which only applies to communications which are distributed to ten or more persons); and
originals of all written communications received and copies of written communications sent by an investment adviser relating to the performance or rate of return of any or all managed accounts or securities recommendations.

The amendments to the books and records rule will apply to any communication circulated or distributed on or after October 1, 2017.

Material Changes:

If you are registered with the SEC or a state securities authority, you must amend your Form ADV, including corresponding sections of Schedules A, B, C, and D, by filing additional amendments (other-than-annual amendments) promptly if:

information you provided in response to Items 1, 3, 9 (except 9.A.(2), 9.B.(2), 9.E., and 9.F.), or 11 of Part 1A or Items 1, 2.A. through 2.F., or 2.I. of Part 1B becomes inaccurate in any way;
information you provided in response to Items 4, 8, or 10 of Part 1A or Item 2.G. of Part 1B becomes materially inaccurate; or
information you provided in your brochure becomes materially inaccurate (see note below for exceptions)

Notes:

Part 1: If you are submitting an other-than-annual amendment, you are not required to update your responses to Items 2, 5, 6, 7, 9.A.(2), 9.B.(2), 9.E., 9.F., or 12 of Part 1A or Items 2.H. or 2.J. of Part 1B even if your responses to those items have become inaccurate.

Part 2: You must amend your brochure supplements (see Form ADV, Part 2B) promptly if any information in them becomes materially inaccurate. If you are submitting an other-than-annual amendment to your brochure, you are not required to update your summary of material changes as required by Item 2. You are not required to update your brochure between annual amendments solely because the amount of client assets you manage has changed or because your fee schedule has changed. However, if you are updating your brochure for a separate reason in between annual amendments, and the amount of client assets you manage listed in response to Item 4.E or your fee schedule listed in response to Item 5.A has become materially inaccurate, you should update that item(s) as part of the interim amendment.

• If you are an SEC-registered adviser, you are required to file your brochure amendments electronically through IARD. You are not required to file amendments to your brochure supplements with the SEC, but you must maintain a copy of them in your files.

• If you are a state-registered adviser, you are required to file your brochure amendments and brochure supplement amendments with the appropriate state securities authorities through IARD.

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Summer Fun and Q3 Federal Filings For Investment Advisers

lcolpas — Thu, 29 Jun 2017 16:39:23 +0000

As the second quarter of 2017 draws to a close we’ve put graduations behind us and for some of us, we eagerly await the start of summer camp, others plan day trips to the beach (raise your hand if you are going to the Jersey shore), invite friends for the inevitable BBQs that, for some, may result in burnt veggies and burgers… don’t tell my husband I said that.

Amidst the start of our summer fun let’s not forget our federal filing obligations due in the third quarter (sorry to quash your summer dreams). The sooner you start gathering the data required for these filings the easier it will be for you when the filings are due.

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ABOUT LILIAN COLPAS
Lilian Colpas is an accomplished compliance professional with over 12 years of global compliance experience. Lilian provides consulting services to SEC and state-registered investment advisers and conducts AML independent reviews for broker/dealers. Previously, Lilian held roles as a compliance officer for Davidson Kempner, Harding Loevner and AIG Global Investments (now PineBridge).

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WTF? Why are You Such a Fiduciary?

scottbrown — Fri, 09 Jun 2017 16:45:20 +0000

BULLETIN: The Department of Labor (DOL) Fiduciary Rule

Spotlight On Talent: Scott Brown, Senior Consultant at Compliance Risk Concepts
The Department of Labor (DOL) Fiduciary Rule, was originally scheduled to be phased in over the period encompassing April 10, 2017 – January 1, 2018, but is now to be phased in starting June 9, 2017 including a transition period for the applicability of certain exemptions to the rule extending through Jan. 1, 2018.

In his compliance bulletin WTF? Why are You Such A Fiduciary?, Scott Brown discusses who is defined as a fiduciary, the sort of investments the rule impacts and best practices during the transition period (June 9, 2017 to January 1, 2018).

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ABOUT SCOTT BROWN

Prior to joining Compliance Risk Concepts, Mr. Brown was employed as a Principal Examiner at FINRA from 2005 to 2016. Mr. Brown’s responsibilities at FINRA included sales practice and financial examinations of member firms. Sales practice examinations entailed detailed reviews of member firms’ systems of supervision and control, reviews of policies governing marketing and sales of financial products and services (equities, mutual funds, corporate and municipal debt), and detailed reviews of broker-dealers’ anti-money laundering compliance programs. Financial Examinations involved verification of the accuracy of General Ledgers, Trial Balances, Income Statements, Balance Sheets, Net Capital Computations and FOCUS Filings for a diverse universe of broker-dealers.

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Part 3 of 3: It's 2017, What Are The SEC’s Priorities?

portia — Mon, 13 Mar 2017 13:19:44 +0000

Assessing Market-Wide Risks

Spotlight On Talent: Portia Amato, Compliance Officer

This is the third installment of our 3-part series, It's 2017, What Are The SEC’s Priorities?, in which we discuss the 2017 examination priorities of the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission.

This year the SEC priorities are organized around three thematic areas: 1) Examining matters of importance to retail investors; 2) Focusing on risks specific to elderly and retiring investors and 3) Assessing market-wide risks.

In this third and final article, we take a look at the SEC’s third focus initiative, “Assessing Market-Wide Risks”.

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ABOUT PORTIA AMATO
Portia Amato is a seasoned Compliance Officer, having over 18 years of investment management experience. Over the course of her career, Portia has specialized in compliance, operations and client services for investment advisors and top tier investment banks. Portia also successfully helped to launched two wrap-fee programs for New York Life Investment Management and US Trust

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Part 2 of 3: It's 2017, What Are The SEC’s Priorities?

portia — Mon, 13 Feb 2017 14:11:03 +0000

Risks Specific To Senior Investors and Retirement Investments

Spotlight On Talent: Portia Amato, Compliance Officer

Now that we have examined the SECs’ focus on Retail Investors (Part 1: It’s 2017, What Are the SEC’s Priorities?), it is time to turn our attention to the OCIE’s 2nd focus area: Risks specific to Senior Investors and Retirement Investments as well as a few other initiatives on the 2017 Priority List.

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Part 1 of 3: It's 2017, What Are The SEC’s Priorities?

portia — Fri, 27 Jan 2017 20:45:54 +0000

Examining matters of importance to retail investors

Spotlight On Talent: Portia Amato, Compliance Officer

By now, every CCO and their team have asked themselves this question, and if you have not already, this is the time to do so, especially if you have not been the lucky host to a SEC Audit in some time.

The Office of Compliance Inspections and Examinations (OCIE) of the Securities and Exchange Commission (SEC) has released their list of priorities for the year and it is covering a lot of ground. They did break it down into three focus areas:

1) Examining matters of importance to retail investors
2) Focusing on risks specific to elderly and retiring investors
3) Assessing market-wide risks

In this first part of a three-part series, Portia Amato reviews the first focus area, Examining Matters of Importance to Retail Investors, including the subtopics and how Registered Investment Advisors (RIA’s) and Broker Dealers (BD’s) alike can tackle these matters should the SEC pay a visit.

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Bulletin: FINRA 2017 Regulatory and Examination Priorities Letter

damster — Tue, 17 Jan 2017 20:56:12 +0000

Sometimes, Being Two-Faced is a Good Thing…

Spotlight On Talent: David Amster, Principal and Head of Fund and Dealer Advisory

On January 1, 153 B.C., Rome was the site of the first recorded new year’s celebration during which Romans paid tribute to Janus – January’s namesake and the Roman god of beginnings and endings. Janus had two faces, one looking forward and one looking back. Taking a cue from Janus and in keeping with its own New Year’s tradition, FINRA looks both back on the past and forward toward the future with its annual Regulatory and Examination Priorities Letter. As always, it’s a particularly useful tool that offers a straightforward glimpse into the collective mindset of FINRA’s senior leadership. CRC strongly advises its clients (and all other member firms, for that matter) to heed FINRA’s counsel and to apply critical thought to those areas of the letter that are relevant to their firm’s business lines and operations.

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David Amster offers key takeaways from FINRA’s annual dispatch. Enter your information below to download your complimentary copy of Sometimes, Being Two-Faced is a Good Thing… FINRA 2017 Regulatory and Examination Priorities Letter:

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Anti-Bribery Regulation and Enforcement: Are Things About to Change?

dan — Tue, 10 Jan 2017 15:41:48 +0000

Spotlight On Talent: Dan Dorsky, Principal and Head of Anti-Corruption and Ethics

These are fascinating times for U.S. and global enforcement of anti-bribery laws. More resources are being dedicated, more countries are participating, and the resulting outcomes have been extraordinary fines and penalties, along with enhanced risk of individual criminal prosecutions. Concurrently, the recent U.S. election may signal an inflection point; Mr. Trump has in the past spoken critically of the FCPA and he is now in a position to potentially act on those sentiments.

So where does that leave us? Will hindsight prove 2016 to be the high water mark for anti-bribery enforcement, or can we expect continuing and increased enforcement?

Let’s begin with a very abbreviated look at the current state. 2016 witnessed truly mammoth enforcement actions: VimpelCom suffered a $795 million penalty (split between Dutch and U.S. authorities), Teva Pharmaceuticals $519 million, Och Ziff $412 million, J.P. Morgan $264 million, and it has been reported that Telia Company may pay up to $1.4 billion. Perhaps of even greater significance, the biggest fine in history was recently announced; Odebrecht and its unit Braskem will pay a combined $3.5 billion (or perhaps a billion dollars more, depending on their ability to pay without going bankrupt). Notably, only $160 million of that amount will go to the U.S. The rest will be paid to enforcement authorities in Brazil and Switzerland. In a continuing trend, non-U.S. attention to anti-bribery laws is markedly increasing in several additional countries, such as France and Israel (Israel and Britain also made some notable arrests of corporate executives).

In this bulletin, Dan Dorsky shares his analysis of the potential impact of the Trump administration on these trends.

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ABOUT DAN DORSKY
Mr. Dorsky is a former Assistant United States Attorney in both the Southern and Eastern Districts of New York, and a former Chief Compliance Officer for an S&P 500 company.

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Out With The Old...In With The New

lcolpas — Thu, 05 Jan 2017 21:38:43 +0000

COMPLIANCE BULLETIN: OUT WITH THE OLD...IN WITH THE NEW
Spotlight On Talent: Lilian Colpas, Senior Compliance Consultant

Why is January 1 different from all other days of the year? After all, nothing fundamentally really changes. Nevertheless, most of us see January 1 as a new beginning in which we resolve to renew ourselves and discard undesirable traits. As you return to work from the long holiday weekend what will you resolve for 2017?

As an adviser, the annual compliance review requirement imposed by Rule 206(4)7, or the “compliance rule”, should be a fundamental part of your New Year’s resolution. The goal of 206(4)7 is to ensure your policies and procedures are adequate for your business model, therefore, you should assess each policy ever year to identify what is working and what is not working.

In this bulletin, Lilian Colpas discusses the importance of the annual compliance review and the SEC’s recommended topics that advisers should be addressing as part of their compliance program.

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ABOUT LILIAN COLPAS
Lilian Colpas is an accomplished compliance professional with over 12 years of global compliance experience, most recently as compliance officer for Harding Loevner in Bridgewater, NJ. Previously, Lilian held roles as a compliance officer for Davidson Kempner Capital Management and AIG Global Investments (now PineBridge Investments). Lilian also worked as a paralegal for Sidley Austin Brown and Wood and AIG.

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You’ve Established The Tone At The Top – Do You Know The Mood In The Middle?

lcolpas — Mon, 28 Nov 2016 16:57:46 +0000

COMPLIANCE BULLETIN: SEC WHISTLEBLOWER REGULATIONS
Spotlight On Talent: Lilian Colpas, Senior Compliance Consultant

The most recent SEC announcement by OCIE correlates to the point that whistleblowers have an incentive to earn millions of dollars from your ineffective compliance program. The SEC has monetary incentives to draw out these employees and expose the trials and tribulations of your firm. If your firm is not in compliance with the SEC’s whistleblower regulations, Rule 21F-17, you could face enforcement action.

Lilian Colpas, examines the current rhetoric surrounding SEC’s whistleblower regulations and the SEC’s expectation of registered advisers and their compliance with the whistleblower rule.

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Bulletin: Hedge Fund Rocked By Bribery Investigation By Dan Dorsky

dan — Tue, 25 Oct 2016 15:44:03 +0000

by Dan Dorsky, Principal, Anti-Corruption and Ethics Practice.

An enforcement action jarring the financial services sector has been resolved. Och-Ziff Capital Management Group LLC agreed to pay a combined penalty of $412 million towards its settlement with the Department of Justice (“DOJ”) and Securities & Exchange Commission (“SEC”) related to the agencies’ Foreign Corrupt Practices Act (“FCPA”) investigation into bribery activity in Africa. It is a criminal violation of the FCPA to provide anything of value to a non-U.S. government official in exchange for a business advantage. According to Och-Ziff’s August Form 10-Q, this resolution “could have a material adverse effect on the Company’s business, financial condition or results of operations.”

The settlement, announced on September 29, 2016, represents the culmination of a long-simmering investigation launched in 2011. At that time, the SEC began issuing subpoenas into the conduct of multiple financial services businesses concerning their dealings with sovereign wealth funds. In other words, the government appears to have been concerned that banks, investment firms, private equity and/or hedge funds may have provided benefits to employees of these sovereign wealth funds in exchange for business.

Dan Dorsky, examines the SEC's order in the matter of Och-Ziff Capital Management Group LLC and discusses what this settlement means to the hedge fund giant and the industry.

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ABOUT DAN DORSKY

Mr. Dorsky’s background combines public service in the Department of Justice and work in the corporate sector as well as service in private practice and in the nonprofit sector. He has represented companies in dealings with the DOJ and the Securities and Exchange Commission in arriving at favorable resolutions.

Mr. Dorsky served as Senior Compliance Counsel at Tyco where, as part of the post-Dennis Kozlowski clean-up effort over a five-year period, he developed and implemented global compliance with the Foreign Corrupt Practices Act (FCPA). The company’s highly successful resolution with the Department of Justice and the Securities and Exchange Commission resulted in a Non-Prosecution agreement and no monitor. After the merger of Tyco’s Flow Control Division with Pentair, Mr. Dorsky most recently served as Pentair’s Vice President and Chief Compliance Officer, where he brought its Flow Control division to a successful resolution of its three-year period of self-reporting to the DOJ under Tyco’s FCPA settlement.

At Tyco, he led and oversaw global investigations, and helped conceive and drive the implementation of state-of-the-art compliance initiatives, such as Tyco’s groundbreaking Third Party Management Program. Click here to learn more about Mr. Dorsky.

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Who You Callin' A Fiduciary???

damster — Mon, 10 Oct 2016 21:54:08 +0000

COMPLIANCE BULLETIN: DOL FIDUCIARY RULE Spotlight On Talent: David Amster, Principal and Head of Fund and Dealer Advisory The United States Department of Labor (“DOL”) recently finalized rules that require financial institutions that offer retirement advice to address conflicts of interest (“COIs”) that arise as a result of offering such advice (the “Fiduciary Rule”). The effective date is April 10, 2017. As one would expect with any new rule of this magnitude, there are potential minefields everywhere. David Amster, examines these minefields and discusses what you need to know about the DOL Fiduciary Rule to stay ahead of the game.

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ABOUT DAVID AMSTER David Amster, Principal and Head of Fund and Dealer Advisory, is responsible for CRC’s business development, client relationship management and for supervising the execution of strategic engagements. David joined CRC in September 2016 from CRT Capital Group LLC, where he served for more than 15 years as Managing Director and Chief Compliance Officer.

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Compliance Bulletin 01-15: A TALE OF TWO VERTICALS

Mitch Avnet — Sun, 22 Feb 2015 23:29:05 +0000

The Differences Between Broker-Dealers and Investment Advisers Over the past few years, we have discovered that many of our clients and prospects have taken a genuine interest and are often seeking information, trying to ascertain the benefits / issues that exist within the Broker-Dealer and Investment Adviser models. This includes, but is not limited to, regulatory requirements, commission / fee structures, infrastructure requirements, operational issues, fiduciary versus suitability standards, etc. Whether you operate within a Broker-Dealer or Investment Adviser – the basic operating premise must be the needs of the customer outweigh the needs of the firm / investment professional. Having said that, both models offer viable solutions and approaches to customers. However, as we all know – you can’t be all things to all people. There are certain activities an organization can only undertake within a broker-dealer entity (i.e., IPO’s, Secondary Offerings, M&A Advisory, Private Placements, etc.). Conversely, in order to receive a fee for providing advice to customers, an organization must be registered as an Investment Adviser. We hope you find this side-by-side analysis helpful and educational. As always, feel free to reach out with any questions, comments, etc. Happy Reading! Fill out the form below to download your complimentary Compliance Bulletin titled:

A TALE OF TWO VERTICALS: The Differences Between Broker-Dealers and Investment Advisers

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Compliance Bulletin 04-14

Mitch Avnet — Tue, 14 Oct 2014 21:11:45 +0000

YOU BETTER CHECK YOURSELF - BEFORE YOU WRECK YOURSELF
End of Year Compliance Requirements For Broker Dealers

As the end of 2014 quickly approaches, this Compliance Bulletin serves as a notice and reminder to Broker-Dealers regarding year-end responsibilities that must be executed in accordance with FINRA / SEC regulatory requirements. Reconciling your current “state of compliance” is the most effective way to ascertain your program’s status and ensure your firm continues to meet its ongoing regulatory requirements.

Compliance Bulletin 04-14 includes information on:

FINRA 3012 / 3130 Testing and Certification – Identifying Hot Topic Issues
SEC Rule 17a-5 – Annual Compliance Report
Independent Anti-Money Laundering (“AML”) Test / Review
Written Supervisory Procedures (“WSPs”) Review
Continuing Education and Branch Office Reviews
Annual Compliance Meeting, Registrations and Renewals

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Compliance Bulletin 03-14

Kristy Wright — Mon, 02 Jun 2014 18:22:57 +0000

INVESTMENT ADVISER BULLETIN

With the recent SEC enforcement actions taking place, greater emphasis is being put on compliance rules. Valerie Pierrat examines the regulatory landscape and identifies three compliance mandates for advisers to recognize within four recent SEC enforcement actions including: best execution practices and disclosures, valuation of securities, and oversight of sub-advisers.

Fill out the form below to download your complimentary Investment Adviser Compliance Bulletin.

The Compliance Bulletin Service

Thank you again for your interest in Compliance Risk Concepts. We strive to continually evidence our overall credibility as a “go to” resource – and create long term value for our clients.

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Compliance Bulletin 02-14

Mitch Avnet — Fri, 18 Apr 2014 18:49:17 +0000

EMBRACING SOCIAL MEDIA

Social Media Governance for Public Companies

Compliance Bulletin 02-14

Last year, the SEC’s Division of Enforcement conducted an inquiry into a post by Netflix CEO Reed Hastings on his personal Facebook page. This served as a wake up call to many in our industry.

Whether a public company is an early adopter or not – sooner or later, social media will become just another facet of how we all communicate.

We recommend all public companies utilizing social media for corporate communications implement controls to ensure that all social media communications on behalf of the company are true and complete and that the company controls the timing to comply with Regulation FD and to avoid premature disclosure and that disclosures are crafted in a manner that protects companies from 10b-5 fraud or inside trading claims.

Fill out the form below to download your complimentary Social Media Governance for Public Companies to receive CRC's recommendations for guidance and ongoing training in regard to your company's Next Generation Social Media Policy.

The Compliance Bulletin Service

Thank you again for your interest in Compliance Risk Concepts. Our ultimate goal is to evidence our overall credibility as a “go to” resource – and create long term value for our clients.

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Compliance Bulletin 01-14

Mitch Avnet — Mon, 20 Jan 2014 23:07:23 +0000

A 2014 WAKE UP CALL FOR INVESTMENT ADVISERS

Compliance Bulletin 01-14

Now more than ever, Investment Advisers must ensure they have regular and rigorous compliance programs in place to keep pace with industry requirements and expectations. The SEC’s Compliance Program Initiative and 2014 Examination Priorities should serve as a “wake up call” to Investment Advisers.

As a former Chief Compliance Officer for a Fortune 200 Company, I understand these challenges and have created this bulletin as a “road map” / “checklist” for Investment Advisers to review and reconcile their respective controls, policies and procedures and discrete risk management activities.

The Compliance Bulletin Service

The monthly Compliance Bulletin Service provides the information your organization needs- at the speed it can handle it. Let the trusted Compliance professionals at CRC do the hunting, gathering and data-mining for you. Want a peek at the monthly bulletin exclusively offered with this service?

Fill out the form below to download your complimentary copy.

Additionally, as part of our service, we provide guidance and recommendations that organizations should weigh / consider as it relates to new rules or modified / amended rules impacting Institutional and Retail broker-dealers and registered investment advisers, wealth / asset managers, hedge funds, private equity, Municipal Advisors, M&A, etc.

Thank you again for your interest in Compliance Risk Concepts. Our ultimate goal is to evidence our overall credibility as a “go to” resource – and create long term value for our clients.

P.S. - If you aren’t yet familiar with our Financial Services support model, please click on the following link: https://compliance-risk.com/service-model-verticals/

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Compliance Bulletin 01-13

Mitch Avnet — Fri, 20 Dec 2013 00:47:27 +0000

The CRC Solution To Managing Through Regulatory Change

Now more than ever, compliance departments need to stay abreast of regulatory changes in the industry. But maintaining a “culture of compliance” amidst the tactical day-to-day operations is difficult enough without trying to somehow dedicate additional resources to “data-mine” for changes and requirements that may / may not be impacting your discrete compliance activities and presenting real “risk” to your organization.

As a former Chief Compliance Officer for a Fortune 200 Company, I understand these challenges and have created a feasible solution for small to mid-size organizations and the Independent Broker-Dealer and Investment Adviser communities struggling to meet those needs.

The Compliance Bulletin Service

The monthly Compliance Bulletin Service provides the information your organization needs- at the speed it can handle it. Let the trusted Compliance professionals at CRC do the hunting, gathering and data-mining for you.
Want a peak at the monthly bulletin exclusively offered with this service? Fill out the form below to download your complimentary copy.

Thank you again for your interest in Compliance Risk Concepts. Our ultimate goal is to evidence our overall credibility as a “go to” resource – and create long term value for our clients.

P.S. - If you aren’t yet familiar with our Financial Services support model, please click on the following link: https://compliance-risk.com/financial-service

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