FINRA report on broker-dealer management of conflicts of interest

2014 ◽  
Vol 15 (1) ◽  
pp. 62-64
Author(s):  
Scott Anderson
Keyword(s):  
Conflict Management ◽  
Financial Services ◽  
Design Methodology ◽  
Conflicts Of Interest ◽  
Management Systems ◽  
Information Collection ◽  
Focus Attention ◽  
Financial Industry ◽  
Content Type ◽  
Policies And Procedures

Purpose – To summarize the Financial Industry Regulatory Authority report on broker-dealer conflicts of interest. Design/methodology/approach – Discusses background of recent FINRA information collection effort on conflicts of interest upon which FINRA based the report. Outlines FINRA objectives for firms to review their current conflicts management systems. Discusses three key areas where firms should focus attention, including examples of possible practices firms can undertake: a firm's general conflicts of interest framework across all business lines; new products creation and distribution; and compensation practices. Findings – The report highlights areas that FINRA expects broker-dealers to consider in reviewing their compliance policies and procedures to assess whether firms should implement changes to their own conflict management frameworks. FINRA will evaluate whether to pursue future conflicts management rulemaking if broker-dealer firms do not make adequate progress on conflicts management. Originality/value – Practical explanation by experienced financial services lawyer.

FINRA publishes guidance on research conflict of interest rules

2016 ◽  
Vol 17 (1) ◽  
pp. 45-50
Author(s):  
Timothy Burke ◽  
Jason Pinney
Keyword(s):  
Conflicts Of Interest ◽  
Selection Process ◽  
Valuable Insight ◽  
Financial Industry ◽  
Content Type ◽  
Risk Levels ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Research Analysts ◽  
Practical Implications

Purpose To explain recent guidance released by the Financial Industry Regulatory Authority (FINRA) regarding research analyst conflicts of interest that arise during the underwriter selection process. Design/methodology/approach The article discusses the risks associated with different communications between research analysts and issuers during the three phases of the underwriter selection process: the pre-IPO period; the solicitation period; and the post-mandate period. Findings While many questions remain, the FINRA guidance provides valuable insight to firms regarding the types of communications between research analysts and issuers that are permitted during different periods in the solicitation process. The risk levels associated with different types of communications during those time periods range from low to high to “unmanageable”. The article provides practical guidance on what research analysts can say and do during the different periods. Practical implications Broker-dealers should evaluate their policies and procedures to ensure compliance with the new FINRA guidelines. Originality value Practical guidance from experienced securities lawyers who are on the front lines in dealing with these issues.

MSRB publishes its first compliance advisory for broker-dealers

2016 ◽  
Vol 17 (3) ◽  
pp. 49-51
Author(s):  
Scott R. Anderson ◽  
Kate S. Poorbaugh
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Content Type ◽  
Compliance Programs ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Effective Compliance ◽  
Practical Implications

Purpose To summarize the Municipal Securities Rulemaking Board’s 2016 Compliance Advisory for brokers, dealers and municipal securities dealers. Design/methodology/approach Summarizes several Municipal Securities Rulemaking Board (MSRB) rules that the Compliance Advisory highlights as presenting key compliance risks for brokers, dealers and municipal securities dealers. Discusses the factors included in the Compliance Advisory that dealers should consider when evaluating compliance procedures and controls. Findings By highlighting some key compliance risks and providing considerations tailored to those risks, the Compliance Advisory can be used as a tool to aid dealers in developing and assessing effective compliance programs. Practical implications Dealers should consider reviewing their firms’ existing compliance policies and procedures in light of the considerations discussed in the Compliance Advisory. Originality/value Practical guidance from experienced securities and financial services regulatory lawyers.

Heightened supervision of branch offices

2015 ◽  
Vol 16 (2) ◽  
pp. 18-21
Author(s):  
Daniel A. Nathan ◽  
Lauren Navarro ◽  
Kevin Matta
Keyword(s):  
Regulatory Authority ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Financial Industry ◽  
Content Type ◽  
National Examination ◽  
Policies And Procedures ◽  
The Us ◽  
Branch Office ◽  
Practical Implications

Purpose – To explain expectations of the US Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) as to what constitutes successful branch inspection programs for broker-dealers. Design/methodology/approach – Summarizes FINRA’s rules requiring firms to implement branch inspection programs; examines the SEC’s and FINRA’s joint 2011 National Examination Risk Alert, which expanded upon FINRA’s rules, requiring firms to conduct risk-based analyses on each branch office to determine the appropriate frequency, intensity, and focus of inspections; discusses FINRA’s expectation that firms examine their registered representatives’ financial circumstances to reduce the risk of fraud; explains how FINRA’s Comprehensive Automated Risk Data System may impact branch inspections; and recommends several sources that firms should review when implementing a successful branch inspection program. Findings – Regulators have heightened their expectations as to what constitutes successful branch inspection programs for broker-dealers. Practical implications – To avoid regulatory intervention and discipline, firms should continue to review their policies and procedures to ensure that their programs are sufficiently comprehensive. Originality/value – This article will encourage firms with branch offices to review their branch inspection programs, and assist those firms in implementing sufficiently comprehensive policies and procedures.

Conflicts of interest in finance

2018 ◽  
Vol 26 (3) ◽  
pp. 334-350
Author(s):  
Morten Kinander
Keyword(s):  
Business Ethics ◽  
Moral Reasoning ◽  
Moral Psychology ◽  
Financial Services ◽  
Conflicts Of Interest ◽  
Negative Consequences ◽  
Financial Industry ◽  
Content Type ◽  
Finance Industry ◽  
The Impact

Purpose Relying on research from social psychology and business ethics, this paper aims to argue that the current massive regulatory regime surrounding the attempts to curb what is perceived to be damaging conflicts of interests in the financial industry is based on misguided assumptions, and that the trend of increasingly detailed rule-making, supervision and sanctioning in this area might be counter-effective. This should cause financial services legislators and regulators to be cautious when proposing more detailed rules as solutions to perceived problems. The paper argues that disclosure is no remedy for a harmful conflict of interest, and that such an obligation can only be based on the client’s right to know about the conflict. This right, however, does not, in itself, justify all the extensive and detailed regulation in the area. The paper ends with a recommendation for more research into the moral reasoning ability of financial services professionals, as well as the interplay between judgment and rules in the finance industry. Design/methodology/approach The paper relies on research within behavioural moral psychology, and applies it to business ethics with the aim of discussing the impact of regulation on moral reasoning within the finance industry. Findings Regulation might lead to a decrease in moral reasoning, which is the premise of proper handling of conflicts of interest. Additionally, disclosure of unavoidable conflicts of interest might even strengthen the negative consequences of such conflicts. Research limitations/implications More research should be conducted within the financial services sector about the effect of regulation on individual judgment. Practical implications The paper proposes that care should be exercised when proposing increased and complex regulation to avoid unintended and adverse consequences for the financial services industry. Originality/value The paper synthesises existing research within different fields – such as moral psychology and analytic business ethics – and applies it to financial regulation.

SEC administrative law judge bars investment manager for misrepresenting GIPS compliance

2014 ◽  
Vol 15 (3) ◽  
pp. 38-40
Author(s):  
Michael S. Caccese ◽  
Douglas Y. Charton ◽  
Pamela A. Grossetti
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Performance Standards ◽  
Administrative Law ◽  
Investment Performance ◽  
Content Type ◽  
Policies And Procedures ◽  
Investment Manager ◽  
Practical Guidance ◽  
Practical Implications

Purpose – To explain an administrative law judge (ALJ) decision, along with a censure, fine, and industry disbarment, against an investment adviser for misleading advertising and false claims of compliance with Global Investment Performance Standards (GIPS). Design/methodology/approach – Explains the background to GIPS, the investment adviser’s GIPS violations, the significance of the case, and lessons to be learned by investment advisors on compliance with GIPS standards. Findings – The decision is particularly significant because the ALJ issued such severe sanctions based solely on false claims of GIPS compliance notwithstanding the fact that all reported performance returns were accurate and no investors relied on or were harmed by the false claims of compliance. Practical implications – The Zavanelli case should serve to put firms on notice that persistent noncompliance with the GIPS standards can have serious consequences and that all marketing materials should be subject to effective review and approval policies and procedures prior to distribution or publication to ensure compliance with the GIPS standards. Originality/value – Practical guidance from experienced financial services lawyers.

2020 SEC risk alert provides guidance for private fund advisers

2020 ◽  
Vol 21 (1) ◽  
pp. 49-54
Author(s):  
Kenneth Breen ◽  
Phara Guberman
Keyword(s):  
Best Practices ◽  
Design Methodology ◽  
Conflicts Of Interest ◽  
Securities And Exchange Commission ◽  
Internal Controls ◽  
Content Type ◽  
Policies And Procedures ◽  
Expert Analysis ◽  
Practical Implications ◽  
The U.S

Purpose To analyze the U.S. Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) June 2020 Risk Alert, which identified three categories of deficiencies that the SEC regularly finds in its reviews of advisers to private funds, in order to understand its guidance and recommend best practices. Design/methodology/approach The study discusses the categories of deficiencies that the SEC regularly finds in its reviews of private fund advisers, current SEC enforcement trends, and recommendations for disclosures, internal controls, policies and procedures. Findings The SEC will expect private funds to identify and remedy regular deficiencies in three primary categories: gaps in client and investor disclosures regarding conflicts of interest; deficiencies in disclosures related to fees and expenses; and issues with policies and procedures regarding the treatment of material nonpublic information. Practical implications Private fund advisers should expect increased scrutiny during examinations on the identified deficiencies and use this opportunity to be proactive in addressing these issues. Originality/value Expert analysis and guidance from experienced securities enforcement attorneys.

FINRA revises and restructures registration and exam requirements

2018 ◽  
Vol 19 (1) ◽  
pp. 42-49
Author(s):  
Edward J. Johnsen ◽  
John H. Grady
Keyword(s):  
Financial Services ◽  
Regulatory Authority ◽  
Design Methodology ◽  
Securities And Exchange Commission ◽  
Financial Industry ◽  
Content Type ◽  
The Us ◽  
Securities Industry ◽  
Practical Guidance ◽  
Limited Period

Purpose To explain a new set of rules, detailed in FINRA Regulatory Notice 17-30, proposed by the Financial Industry Regulatory Authority (FINRA) and approved by the US Securities and Exchange Commission (SEC), that revise and streamline the number and types of proficiency exams broker-dealer personnel must take in order to become registered, as well as the categories of registration. Design/methodology/approach Discusses the background, including FINRA’s consolidation of National Association of Securities Dealers (NASD) rules; the new registration regime; conditions for waivers; criteria for “permissive” registration; firms’ requirement to designate “Principal Financial Officers” and “Principal Operations Officers”; new categories of principal registration; FINRA’s elimination of certain registration categories; research analyst, research principal and supervisory analyst exam requirements; the ability of a registered representative to function as a principal for a limited period; the prohibition of unregistered persons to accept orders from customers; and the Securities Industry Essentials (SIE) Examination Content Outline. Findings The new structure is intended to bring greater consistency and uniformity to the qualification process. Among other changes, it eliminates several registration categories that either have become outdated or have limited utility, permits persons not yet associated with a broker-dealer or employed in the securities industry to take a preliminary registration exam prior to entering the securities industry, and makes other changes intended to modernize the registration and examination regime for broker-dealer personnel. Originality/value Practical guidance from lawyers with broad stock brokerage, investment management and related financial services experience.

MSRB publishes 2017 compliance advisory for broker-dealers

2018 ◽  
Vol 19 (1) ◽  
pp. 50-52
Author(s):  
Scott R. Anderson ◽  
James Audette ◽  
Kate S. Poorbaugh
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Content Type ◽  
Compliance Programs ◽  
Policies And Procedures ◽  
Practical Guidance ◽  
Effective Compliance ◽  
Practical Implications

Purpose To summarize the Municipal Securities Rulemaking Board’s 2017 Compliance Advisory for brokers, dealers and municipal securities dealers. Design/methodology/approach Summarizes several Municipal Securities Rulemaking Board (MSRB) rules that the Compliance Advisory highlights as presenting key compliance risks for brokers, dealers and municipal securities dealers. Discusses the factors included in the Compliance Advisory that dealers should consider when evaluating compliance procedures and controls. Findings By highlighting some key compliance risks and providing considerations tailored to those risks, the Compliance Advisory can be used as a tool to aid dealers in developing and assessing effective compliance programs. Practical implications Dealers should consider reviewing their firm’s existing compliance policies and procedures in light of the considerations discussed in the Compliance Advisory. Originality/value Practical guidance from experienced securities and financial services regulatory lawyers.

Recent SEC enforcement actions put spotlight on prohibited short selling

2014 ◽  
Vol 15 (1) ◽  
pp. 41-44
Author(s):  
Stephen Wink ◽  
Christopher Clark ◽  
Stefan Paulovic ◽  
Kathleen Whipple
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Zero Tolerance ◽  
Short Selling ◽  
Content Type ◽  
Enforcement Action ◽  
Zero Tolerance Policy ◽  
Policies And Procedures

Purpose – To highlight recent enforcement actions by the SEC demonstrating the agency's increased focus on violations of Rule 105 of Regulation M and to provide guidance on how to avoid becoming the target of such an SEC action. Design/methodology/approach – Describes the SEC's 23 recent enforcement actions against firms for violations of Rule 105, explains the conduct prohibited by Rule 105 as well as the exceptions to the Rule, and provides advice on how firms can avoid a Rule 105 related SEC enforcement action. Findings – In light of the SEC's recently announced zero-tolerance policy and the fact that Rule 105 does not require intent on the part of the short seller to engage in a prohibited transaction, firms should provide training to their employees regarding Rule 105, develop and implement policies and procedures to ensure compliance with Rule 105, and enforce those policies and procedures. Originality/value – Practical explanation and guidance by experienced financial services lawyers.

The SEC Speaks 2018: the US Securities and Exchange Commission’s current priorities and conference overview

2018 ◽  
Vol 19 (3) ◽  
pp. 1-4
Author(s):  
Gerald J. Russelo ◽  
Stephen L. Cohen ◽  
Jose F. Sanchez
Keyword(s):  
Financial Services ◽  
Design Methodology ◽  
Regulatory Compliance ◽  
Securities And Exchange Commission ◽  
Financial Industry ◽  
Content Type ◽  
Market Participants ◽  
The Us ◽  
Past Experiences ◽  
Insight Into

Purpose This paper aims to highlight certain comments made by US Securities and Exchange Commission (SEC) officials, which may provide insight into compliance and enforcement issues that may be important for market participants, including broker-dealers, investment advisors and reporting companies, in the future. Design/methodology/approach This paper explains comments made by SEC officials and highlights potential regulatory issues based on past experiences of attorneys within the firm, past comments made by the SEC and Financial Industry Regulatory Authority and past regulatory exam results. Findings This paper summarizes remarks from the recent SEC Speaks 2018 Conference conducted by SEC officials related to the Commission’s regulatory and enforcement priorities. Issuers, brokers, advisors and other financial organizations should familiarize themselves with the themes and guidance discussed at the Conference to prepare for regulatory compliance challenges in the upcoming year. Originality/value Practical guidance from experienced securities and financial services lawyers.

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