September 2023 Overview & Summary On Sept. 6, 2023, the Securities and Exchange Commission’s Division […]
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.
Per Notice 22-11, FINRA recently took enforcement action against several firms for failing to establish or maintain a reasonably designed supervisory system for recommendations of alternative mutual funds, also sometimes referred to as “alt funds” or “liquid alts” (“Alt Funds”). FINRA is continuing to note such deficiencies in its examinations and communications reviews of such products.
This Notice reminds member firms of their sales practice and supervisory obligations for such funds, and, to that end:
Per Special Notice 4/22/22, FINRA conducts annual elections to fill positions on the Small Firm Advisory Committee (SFAC), Regional Committees, National Adjudicatory Council (NAC) and FINRA Board of Governors (FINRA Board). This Notice provides:
FINRA will issue an Election Notice describing the nomination and election procedures for each specific election at the start of each election cycle. Individuals interested in being considered for nomination to positions on the Regional Committees, SFAC, NAC or FINRA Board may submit an indication of interest through FINRA’s online Engagement Portal.
FINRA is committed to promoting greater representation of underrepresented minorities and women across the industry and is seeking to increase such representation on its committees. FINRA encourages those with diverse backgrounds and perspectives to consider running for the vacancies discussed in this Notice.
There were no final rules in April.
Per Release No. 34-94615, the SEC is proposing a set of rules (“Regulation SE”) and forms under Section 3D of the Securities Exchange Act of 1934 (“SEA”) that would create a regime for the registration and regulation of security-based swap execution facilities (“SBSEFs”) and address other issues relating to security-based swap (“SBS”) execution generally. One of the rules being proposed as part of Regulation SE would implement Section 765 of the Dodd-Frank Act, which is intended to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade SBS (“SBS exchanges”). Other rules being proposed as part of Regulation SE would address the cross-border application of the SEA’s trading venue registration requirements and the trade execution requirement for SBS. In addition, the SEC is proposing to amend an existing rule to exempt, from the SEA definition of “exchange,” certain registered clearing agencies as well as registered SBSEFs that provide a market place only for SBS. The SEC also is proposing a new rule that, while affirming that an SBSEF would be a broker under the SEA, would exempt a registered SBSEF from certain broker requirements. Finally, the SEC is proposing certain new rules and amendments to its Rules of Practice to allow persons who are aggrieved by certain actions by an SBSEF to apply for review by the SEC. The SEC also is withdrawing all previously proposed rules regarding these subjects.
Interim Final Rules
There were no interim final rules in April.
There were no interpretive releases in April.
There were no policy statements in April.
Notices to Members
There were no Notices to Members in April.
April 14, 2022
NFA orders Connecticut-based Interactive Brokers LLC to pay a $250,000 fine
April 14, Chicago—NFA has ordered Connecticut-based futures commission merchant and forex dealer Member Interactive Brokers LLC to pay a $250,000 fine.
The Decision, issued by NFA's Business Conduct Committee (BCC), is based on a Complaint issued by the BCC and a settlement offer submitted by Interactive Brokers, in which the firm neither admitted nor denied the allegations in the Complaint. In its Complaint, the BCC alleged that Interactive Brokers canceled retail customer forex orders contrary to the reasons permitted under NFA Compliance Rule 2-43(a)(1) and failed to adequately supervise its employees in the conduct of their forex activities on behalf of the firm to ensure compliance with the relevant NFA requirements, contrary to NFA Compliance Rule 2-36(e). In its Decision, the BCC found that Interactive Brokers violated NFA Compliance Rules 2-43(a)(1) and 2-36(e).
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Regulatory Exam Preparedness
Regulators have been out in force throughout the pandemic and continue to do so. We have observed trends toward lengthy, deeper dive exams, conducted remotely. Firms should consider initiatives aimed at identifying and remediating regulatory gaps in their programs, particularly with respect to current exam focus area trends.
FINRA has released its Examination and Risk Monitoring Program for 2022. Similarly, the SEC has also released its 2022 Examination Priorities. Firms should review these reports to identify if the regulators’ exam priorities intersect with the firm’s business lines.
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:
p. (646) 346-2468
p. (917) 568-6470