As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly […]
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 22-15, FINRA amended the Code of Arbitration Procedure for Industry Disputes (Code) to align the Code with the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021. Among other things, the amendments permit persons with sexual assault claims and sexual harassment claims to elect not to enforce predispute arbitration agreements in cases that relate to those disputes. The amendments also make a conforming change to FINRA Rule 2263 (Arbitration Disclosure to Associated Persons Signing or Acknowledging Form U4).
The text of the rule change is available as Attachment A.
Per Notice 22-16, FINRA has adopted changes to its rules to permit, and in some instances require, electronic service and filing of documents in disciplinary and other proceedings and appeals. FINRA has also amended its rules to require parties in proceedings before the Office of Hearing Officers (OHO) to file and serve the parties with their current email address and contact information at the time of their first appearance, and to file and serve any change in email address or contact information during the course of the proceeding. These amendments will become effective August 22, 2022.
There were no special notices in July.
Per Release No. 34-95266, the SEC is adopting amendments to the Federal proxy rules governing proxy voting advice as part of its reassessment of those rules and in light of feedback from market participants on those rules, certain developments in the market for proxy voting advice, and comments received regarding the proposed amendments. The amendments remove a condition to the availability of certain exemptions from the information and filing requirements of the Federal proxy rules for proxy voting advice businesses. The release also rescinds certain guidance that the SEC issued to investment advisers about their proxy voting obligations. In addition, the amendments remove a note that provides examples of situations in which the failure to disclose certain information in proxy voting advice may be considered misleading within the meaning of the Federal proxy rules’ prohibition on material misstatements or omissions. Finally, the release discusses the SEC’s views regarding the application of that prohibition to proxy voting advice, in particular with respect to statements of opinion.
Per Release No. 33-11082, the SEC is adopting amendments to Volume II of the Electronic Data Gathering, Analysis, and Retrieval system (“EDGAR”) Filer Manual (“Filer Manual”) and related rules and forms. The EDGAR system was upgraded on June 21, 2022.
Per Release No. 34-95267, the SEC is proposing to update certain substantive bases for the exclusion of shareholder proposals under the SEC’s shareholder proposal rule. The proposed amendments would amend the substantial implementation exclusion to specify that a proposal may be excluded if the company has already implemented the essential elements of the proposal. The SEC also proposes to specify when a proposal substantially duplicates another proposal for purposes of the duplication exclusion. In addition, the SEC proposes to amend the resubmission exclusion to provide that a proposal constitutes a resubmission if it substantially duplicates another proposal. Under the proposed amendments, for purposes of both the duplication exclusion and the resubmission exclusion, a proposal would substantially duplicate another proposal if it addresses the same subject matter and seeks the same objective by the same means.
Per Release No. 34-95388, the SEC is re-proposing amendments to a rule under the Securities Exchange Act of 1934 (“Act” or “Exchange Act”) that exempts certain registered brokers or dealers from membership in a registered national securities association (“Association”). The re-proposed amendments would replace the rule’s de minimis allowance, including the exclusion therefrom 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 re-proposed amendments would create exemptions for such a registered broker or dealer that affects transactions off an exchange of which it is a member that results 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.
Interim Final Rules
There were no interim final rules in July
There were no interpretive releases in July.
There were no policy statements in July.
Notices to Members
July 13, 2022
Forex Dealer Members: Effective date for amendment to NFA Compliance Rule 2-43
NFA Compliance Rule 2-43 prohibits a forex dealer member (FDM) from cancelling or adjusting a customer account in a manner that would directly or indirectly change the price of the executed order except under two limited circumstances. The first exception permits a cancellation or adjustment if it is favorable to the customer and done as part of settling a customer complaint, provided the FDM adjusts all adversely affected customer orders. The second exception permits an FDM to adjust or cancel an order if the FDM exclusively uses straight-through processing and the counterparty to the offsetting position with the FDM cancels or adjusts that order. NFA recently amended NFA Compliance Rule 2-43 to specify that the second exception is limited to FDMs that exclusively use straight-through processing with a counterparty that is not an affiliate of the FDM.
This amendment was unanimously approved by the Board and will become effective on September 15, 2022.
More information regarding this amendment can be found in NFA's June 7, 2022 submission letter to the CFTC.
There were no NFA news releases in July.
Bottom of Form
In June, the SEC charged a broker-dealer and five of its registered representatives with violating Best Interest Obligation rules (Regulation Best Interest or Reg BI). The SEC alleged that the defendants failed to comply with Reg BI’s Care Obligation both because they did not exercise reasonable diligence, care, and skill to understand the risks, rewards, and costs associated with an unrated, high-risk debt security, and also because they recommended such security to at least seven particular customers without a reasonable basis to believe they were in their customers’ best interests. The SEC also alleged that the broker-dealer failed to comply with Reg BI’s “Compliance Obligation” because it did not adequately establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.
Reg BI continues to a be a focus area for regulators, and it is important to review your program to ensure that it addresses all aspects of Reg BI as it relates to your business.
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