As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of various FINRA, SEC, NFA, and FinCEN publications to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.
Per Regulatory Notice 24-06, FINRA has adopted amendments to disseminate individual transactions in active U.S. Treasury securities at the end of the day and historically, and to set related fees for members and other professionals who choose to subscribe to the new data set. This new transaction-level data will be publicly available and free of charge on FINRA’s website for non-professionals’ personal, non-commercial purposes on a next-day basis.
The amendments relating to the end-of-day data product take effect on March 25, 2024, and the amendments relating to the historic data product take effect on April 1, 2024.
The rule text is available in the online FINRA manual.
Per Regulatory Notice 24-07, FINRA established an accounting support fee (GASB Accounting Support Fee) in February 2012 pursuant to an SEC order to adequately fund the annual budget of the Governmental Accounting Standards Board (GASB). The GASB Accounting Support Fee is collected on a quarterly basis from member firms that report trades to the Municipal Securities Rulemaking Board (MSRB). Each member firm’s assessment is based on its portion of the total par value of municipal securities transactions reported by all FINRA member firms to the MSRB during the previous quarter. FINRA will assess and collect a total of $18,582,100 to adequately fund GASB’s annual budget by collecting $4,645,525 from its member firms each calendar quarter beginning in April 2024.
Per Regulatory Notice 24-08, FINRA has amended FINRA Rule 4210 (Margin Requirements) to establish a specified exception under the margin rules with respect to certain short option or warrant positions on indexes that are written against products that track the same underlying index. Referred to as “protected” option or warrant positions, the new exception conforms with similar provisions Cboe recently adopted. The amendments are effective as of the date of issuance of this Notice.
This Notice provides an overview of the amendments. The text of the amendments is included as Attachment A. In this Notice, all references to provisions of the amendments are to the rule text as shown in Attachment A.
Per Trade Reporting Notice 3/22/24, FINRA is providing advance notice of future updates to its equity trade reporting guidance in connection with upcoming enhancements to the FINRA equity trade reporting facilities to support reporting of fractional share quantities. Under the updated guidance, members engaged in fractional share trading will be required to report fractional share quantities up to six digits after the decimal.
The effective date of the updated trade reporting guidance will be no earlier than the first calendar quarter of 2025. FINRA will announce the specific effective date of the updated guidance in a future Notice.
Per Release No. 33-11275, the SEC is adopting amendments to its rules under the Securities Act of 1933 (“Securities Act”) and Securities Exchange Act of 1934 (“Exchange Act”) that will require registrants to provide certain climate-related information in their registration statements and annual reports. The final rules will require information about a registrant’s climate-related risks that have materially impacted, or are reasonably likely to have a material impact on, its business strategy, results of operations, or financial condition. In addition, under the final rules, certain disclosures related to severe weather events and other natural conditions will be required in a registrant’s audited financial statements.
These final rules are effective on May 28, 2024.
Per Release No. 34-99679, the SEC is adopting amendments to a rule under the Securities Exchange Act of 1934 (“Exchange Act”) that requires disclosures for order executions in national market system (“NMS”) stocks. First, the amendments expand the scope of reporting entities subject to the preexisting rule that requires market centers to make available to the public monthly execution quality reports to encompass broker-dealers with a larger number of customers. Next, the amendments modify the definition of “covered order” to include certain orders submitted outside of regular trading hours and certain orders submitted with stop prices. In addition, the amendments modify the information required to be reported under the rule, including changing how orders are categorized by order size as well as how they are categorized by order type. The amendments, as part of the changes to the order size categories, modify the rule to capture execution quality information for fractional share orders, odd-lot orders, and larger-sized orders. Additionally, the amendments modify reporting requirements for non-marketable limit orders (“NMLOs”) in order to capture more relevant execution quality information for these orders by requiring statistics to be reported from the time such orders become executable. The amendments modify time-to-execution categories and require average time to execution to be measured in increments of a millisecond or finer and calculated on a share-weighted basis for all orders. The amendments require that the time of order receipt and time of order execution be measured in increments of a millisecond or finer, and that realized spread be calculated at multiple time intervals. Finally, the amendments enhance the accessibility of the reported execution quality statistics by requiring all reporting entities to make a summary report available.
The amendments to Rule 605 discussed herein shall become effective 60 days after the date of publication in the Federal Register (“Effective Date”). The compliance date shall be 18 months after the Effective Date (“Compliance Date”).
Per Release No. 33-11277, 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 24.1 will be deployed in the EDGAR system on March 18, 2024.
Per Release No. 34-99778, the SEC is adopting technical amendments to various rules and forms under the Securities Exchange Act of 1934 (“Exchange Act”) and the Investment Company Act of 1940 (“Investment Company Act”) to reflect a Federal court’s vacatur of rule amendments that the Commission adopted on May 3, 2023, to modernize and improve disclosure about repurchases of an issuer’s equity securities that are registered under the Exchange Act (“Repurchase Rule”). The court’s vacatur of the Repurchase Rule was effective as of December 19, 2023, and had the legal effect of reverting to the rules and forms that existed prior to the effective date of the Repurchase Rule. These technical amendments revise the Code of Federal Regulations (“CFR”) to reflect the court’s vacatur of the Repurchase Rule.
Per Release No. IA-6578, the SEC is adopting 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 SEC registration, as well as related amendments to Form ADV. The amendments are designed to modernize the rule’s conditions to account for the evolution in technology and the investment advisory industry since the initial adoption of the rule in 2002.
The compliance date for the amended rule is March 31, 2025.
There were no proposed rules in March.
There were no interim final rules in March.
There were no interpretive releases in March.
There were no policy statements in March.
Notice I-24-07
March 11, 2024
FCM and IB Members—FinCEN updates its list of FATF-identified jurisdictions with AML/CFT deficiencies
On February 29, 2024, 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 the Russian Federation remains suspended from FATF membership and further warns jurisdictions to remain alert and vigilant to the risks Russia poses to 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.
There were NFA news releases in March.
March 04, 2024
Updated March 11, 2024
On March 1, 2024, in the case of National Small Business United v. Yellen, No. 5:22-cv-01448 (N.D. Ala.), a federal district court in the Northern District of Alabama, Northeastern Division, entered a final declaratory judgment, concluding that the Corporate Transparency Act exceeds the Constitution’s limits on Congress’s power and enjoining the Department of the Treasury and FinCEN from enforcing the Corporate Transparency Act against the plaintiffs. The Justice Department, on behalf of the Department of the Treasury, filed a Notice of Appeal on March 11, 2024. While this litigation is ongoing, FinCEN will continue to implement the Corporate Transparency Act as required by Congress, while complying with the court’s order. Other than the particular individuals and entities subject to the court’s injunction, as specified below, reporting companies are still required to comply with the law and file beneficial ownership reports as provided in FinCEN’s regulations.
FinCEN is complying with the court’s order and will continue to comply with the court’s order for as long as it remains in effect. As a result, the government is not currently enforcing the Corporate Transparency Act against the plaintiffs in that action: Isaac Winkles, reporting companies for which Isaac Winkles is the beneficial owner or applicant, the National Small Business Association, and members of the National Small Business Association (as of March 1, 2024). Those individuals and entities are not required to report beneficial ownership information to FinCEN at this time.
Update [March 11, 2024]: This notice was updated on March 11, 2024, to reflect that a Notice of Appeal has been filed regarding this case.
March 28, 2024
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) is issuing a request for information (RFI) related to existing requirements for banks under the Customer Identification Program (CIP) Rule to collect a taxpayer identification number (TIN) from a customer prior to opening an account. Generally, for a customer who is an individual and a U.S. person, banks are required to collect a full Social Security number (SSN) from a customer. The RFI is being issued in consultation with staff at the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the National Credit Union Administration, and the Board of Governors of the Federal Reserve System.
“The requirement for banks to collect identifying information from a customer prior to opening an account has been a long-standing component of a bank’s anti-money laundering program,” said FinCEN Director Andrea M. Gacki. “However, FinCEN recognizes the significant changes in technology and financial services that have taken place since promulgation of the CIP Rule, and we welcome comments from interested parties as we explore ways to modernize the U.S. anti-money laundering/countering the financing of terrorism regime.” FinCEN recognizes that since the adoption of the CIP Rule there has been significant innovation in customer identifying information collection and verification tools available to banks and other financial institutions. This RFI will inform FinCEN’s understanding in this area and evaluate the risks, benefits, and safeguards if banks were permitted to collect partial SSN information from a customer and subsequently use reputable third-party sources to obtain the full SSN prior to account opening. This RFI also reminds banks of the requirement to collect identifying information from the customer prior to opening an account.
In addition, this RFI supports FinCEN’s ongoing efforts to implement section 6216 of the Anti-Money Laundering Act of 2020, which requires FinCEN to, among other things, identify regulations and guidance that may be outdated, redundant, or otherwise do not promote a risk-based AML/CFT regime.
FinCEN strongly encourages all interested parties to submit written comments. Comments to the RFI will be accepted for 60 days following publication in the Federal Register.
FINRA member firms are in the final stretches of time before several consequential changes take effect this summer. Earlier this year, FINRA announced May 31, 2024 as the end date of the COVID-related regulatory relief set forth in Regulatory Notice 20-08 with respect to the obligation of firms to maintain current information for employment addresses and branch offices on specified uniform registration forms. In addition, the new residential supervisory location (RSL) designation becomes available beginning on June 1, 2024 and that is followed by the new remote inspections pilot program that becomes effective on July 1, 2024. Firm should not delay in evaluating the impact of the changes on their business and the preparations that will be necessary for compliance. For example, firms should be aware that risk assessments must be completed prior to using the RSL designation and conducting remote inspections under the pilot program respectively.
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
David Amster
p. (917) 568-6470
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