The Financial Industry Regulatory Authority (FINRA) recently released its 2019 Report on Examination Findings and Observations. The report intends to reflect key findings and observations identified in FINRA's recent examinations of broker-dealers. The report also describes practices that FINRA deemed to be effective and that could help firms improve their compliance and risk management programmes.
The Securities and Exchange Commission recently charged a Switzerland-based securities dealer for offering and selling unregistered security-based swaps to US investors using bitcoins and for failing to transact its swaps on a registered national exchange. This case illustrates that the use of new technology and terminology does not exempt investment-product dealers from having to comply with US federal securities laws.
The Financial Industry Regulatory Authority recently censured and fined a Florida-based broker-dealer, including for failing to reasonably supervise sales of complex securities such as structured products and leveraged, inverse and inverse-leveraged exchange-traded funds. This case illustrates the need for broker-dealers to establish and enforce proper surveillance systems and written procedures to ensure the suitability of their sale recommendations.
The North American Securities Administrators Association recently issued a report that provided a warning as to the risks of leveraged or inverse exchange-traded funds. The report urges broker-dealers to tailor their supervisory procedures if they allow exchange-traded fund (ETF) transactions in these products. Among other things, the report concludes that broker-dealers should carefully consider whether to permit purchases of leveraged or inverse ETFs in retail customer accounts.
The Securities and Exchange Commission (SEC) recently requested public comment on ways to simplify, harmonise and improve the registration exemptions under the Securities Act. In its concept release, the SEC identified numerous topics to be addressed, such as evaluating the framework and coverage of existing registration exemptions. Any developments in this area will be of interest to the structured products industry.
In a recent interpretative letter, the Financial Industry Regulatory Authority (FINRA) provided guidance to a registered broker-dealer as to the use of pre-inception index performance data relating to a proprietary index. The letter restates and updates FINRA's prior guidance as to the use of back-tested index information, including its historic position that the use of this type of information is inappropriate in communications provided to retail investors.
The Financial Industry Regulatory Authority (FINRA) recently issued its 2019 Risk Monitoring and Examination Priorities Letter. The letter addresses a variety of issues that all broker-dealers must address, whether they offer structured products or not. The letter clarifies that sales of complex products, including structured products, must be reviewed to see whether they comply with FINRA's suitability rules.
The Financial Industry Regulatory Authority (FINRA) recently issued proposed amendments to Rule 2111's quantitative suitability provisions. According to FINRA, the proposal is designed to more effectively counter the problem of 'churning' or excessive trading in customer accounts. The proposal arrives shortly after the Securities and Exchange Commission's proposal of Regulation Best Interest and illustrates how these two regulators must coordinate in order to avoid inconsistent sets of rules.
The Financial Industry Regulatory Authority (FINRA) has updated its guidance on its recent amendments to Rule 2232. The new requirements apply to transactions with retail customers in corporate and agency debt securities. Beginning on the effective date, FINRA will require confirmation disclosure of additional transaction-related information, including mark-ups and mark-downs. The goal of these new rules is to help retail customers to better understand and compare the costs of these transactions.
A seasoned investment banker established a hedge fund and solicited terminally ill patients to open brokerage accounts as joint tenants with rights of survivorship. Upon the death of a patient, the investment banker exercised the survivor's option and assigned the profits to the hedge fund. The Securities and Exchange Commission filed charges against those behind this investment strategy for possible securities law violations, which were recently dismissed by an SEC administrative law judge.
The Financial Industry Regulatory Authority (FINRA) recently announced the Securities Exchange Commission's approval of a variety of its proposed rule amendments relating to the upcoming move of the US securities markets to the T+2 settlement cycle. FINRA has also issued an investor alert to help to explain to investors the impact of the upcoming market-wide changes.
The Financial Industry Regulatory Authority (FINRA) recently released for comment three regulatory notices that propose amendments to various FINRA rules affecting capital formation. This initiative is part of the comprehensive self-evaluation and improvement initiative that FINRA announced several months ago called the FINRA 360 initiative. The initiative, FINRA's recent request for comment on its engagement efforts and these regulatory notices certainly reflect a new tone.
A recent cease-and-desist order from the Securities and Exchange Commission illustrates the types of activity and compliance issue that should be causes for concern for registered investment advisers (RIAs) when recommending non-traditional exchange traded funds. The order stated that the RIA wilfully violated the anti-fraud provisions of the Advisers Act and the requirements to maintain policies and procedures designed to prevent violations of the act.
In a recent case, a former investment adviser lost a petition to review and vacate a Securities and Exchange Commission (SEC) administrative law judge's decision relating to the improper use of backtested information. The case is an illustration of how the improper presentation of backtested information can lead to trouble under the SEC's rules and regulations.
The Depository Trust Company (DTC) recently adjusted its eligibility procedures to comply with the Internal Revenue Code. For securities to become and remain DTC eligible securities, issuers must now comply with the new procedures. An officer of the issuer must attest to the applicability of compliance and issuers must provide the DTC with dividend equivalent payments.