The Securities Litigation Expert Blog

FINRA Moves Closer to Fiduciary Standard with Conflicts Report

Posted by Jack Duval

Oct 22, 2013 10:54:25 AM

According to a release by FINRA CEO Richard G. Ketchum, the regulator is stepping up it's focus on conflicts of interest at Broker-Dealer firms.  (Release)  This increase in focus is significant because it takes a step closer to a fiduciary standard for Registered Representatives.  The full, 44 page report can be found here.

Some areas for BD focus include:

  • identifying and managing conflicts on an ongoing basis through an enterprise-level approach that is scaled to the size and complexity of a firm's business and that starts with a "tone from the top" that carries through to the organization's structures, policies, processes, training and culture;

  • establishing new product review processes that include perspectives independent from the business proposing products, that identify potential conflicts raised by new products, that restrict distribution of products that may pose conflicts that cannot be effectively mitigated and that periodically re-assesses products through post-launch reviews;

  • making independent decisions in the wealth management business about the products they offer without pressure to favor proprietary products or products for which the firm has revenue-sharing agreements;

  • minimizing conflicts in compensation structures between customer and broker or firm interests where possible and including heightened supervision when conflicts remain; for example, around thresholds in a firm's compensation structure;

  • mitigating conflicts of interest through disclosures and other information that enables customers to understand the factors that may affect a product's financial outcome—such as the use of scenarios and graphics for a particular product; and

  • including "best-interest-of-the-customer" standards in codes of conduct that apply to brokers' personalized recommendations to retail customers in order to maintain and increase investor trust.

Broker-Dealer compliance departments will need to establish a framework of policies and procedures to address actual and potential conflicts of interest.


Read More

Topics: FINRA, Richard G. Ketchum, litigation, Conflicts of Interest, investments, report, SEC, Compliance, Dodd-Frank Act, regulation.

FINRA CEO Ketchum Calls for a Uniform Fiduciary Standard for Broker Dealers

Posted by Jack Duval

May 23, 2013 2:48:35 AM

Speaking at the FINRA Annual Conference in Washington, FINRA CEO Richard Ketchum called the SEC out on implementing the uniform fiduciary standard contemplated under Section 913 of the Dodd-Frank Act.  (A1)  Furthermore, if the SEC doesn't act, Ketchum said that FINRA would

"look hard (at issuing) an additional disclosure rule with respect to broker-dealer firms."

Section 913 of the Dodd-Frank Act can be found here.
Read More

Topics: FINRA, Investment Advisors, litigation, SEC, Dodd-Frank Act, fiduciary standard, regulation.

Finra Appoints First Chief Economist

Posted by Jack Duval

May 1, 2013 4:10:23 AM

Finra has hired Jonathan S. Sokobin to be the SROs Chief Economist.  (TR)  Sokobin was trained at the University of Chicago and holds a Ph.D. in Finance.  His primary task will be to prepare cost-benefit analyses of proposed regulations.  From the Thomson Reuters article:

The move is part of a broader effort at FINRA to more deeply scrutinize the potential costs and benefits of securities industry rules it wants to propose.

The U.S. Securities and Exchange Commission, which must approve changes to FINRA's rules, wants FINRA to better support the economic aspects of proposals it submits to the SEC for review, Robert Colby, FINRA's chief legal officer, said last year.

The SEC became more concerned about costs and benefits of industry rules when a federal court, in 2011, threw out an important part of the Dodd-Frank financial oversight law involving shareholders' ability to nominate corporate directors, saying the agency's economic analysis was flawed.

Wall Street's top lobbying group, the Securities Industry and Financial Markets Association, has also been pushing for more detailed analyses of the costs of certain rules to the industry.

Sokobin, who received an MBA and PhD in finance from the University of Chicago, joined the Treasury Department in 2011 as chief of analytical strategy in the office of financial research. Earlier, he was acting director of the SEC's division of risk, strategy and financial innovation. He joined the SEC in 2000 and was named deputy chief economist in 2004.

Read More

Topics: FINRA, SIFMA, chief economist, SEC, cost-benefit analysis, Dodd-Frank Act, Jonathan S. Sokobin, regulation.

St. Louis Fed on Bank Complexity (It's Worst Than You Thought)

Posted by Jack Duval

Feb 28, 2013 3:15:00 AM

This blog post continues our expert analysis of complex investments and their regulation.

William R. Emmons, of the St. Louis Fed, delivered a presentation on October 1, 2012 entitled: "Are the Biggest Banks Too Complex?".  (STLF)  Although the title is rhetorical, the answer is obvious.  The most telling data in the presentation were the number of subsidiaries for each of the largest banks:

    • JP Morgan Chase & Co. - 3,391

    • Bank of America - 2,019

    • Citigroup - 1,645

    • Wells Fargo - 1,366

    • Goldman Sachs - 3,115

    • Morgan Stanley - 2,884

Good luck to the regulators.
Read More

Topics: St. Louis Fed, investments, SEC, Compliance, Dodd-Frank Act, regulation., Complexity, banks

2013 SEC Examination Priorities

Posted by Jack Duval

Feb 22, 2013 1:37:52 AM

The SEC has released it's 2013 Examination Priorities.  (SEC)  The priority list includes:

  • For investment advisers and investment companies — presence exams for newly registered private fund advisers, and payments by advisers and funds to entities that distribute mutual funds

  • For broker-dealers — sales practices and fraud, and compliance with the new market access rule

  • For market oversight — risk-based examinations of securities exchanges and FINRA, and order-type assessment

  • For clearing and settlement — For transfer agent exams, timely turnaround of items and transfers, accurate recordkeeping, and safeguarding of assets. For clearing agencies designated as systemically important, conduct annual examinations as required by the Dodd-Frank Act.

See our coverage of the Finra 2013 exam priorities here.
Read More

Topics: FINRA, examination, Dodd-Frank, Investment Advisors, investments, SEC, Compliance, Dodd-Frank Act, regulation.

Finra Scales Back RIA Oversight Bid

Posted by Jack Duval

Feb 8, 2013 1:45:46 AM

Finra CEO Richard G. Ketchum is quoted in an InvestmentNews article saying the regulator will pare back it's lobbying efforts to take over Investment Advisor regulation from the SEC.  (IA)  Despite the lack of political momentum, Ketchum said the need for more resources for RIAs remains.

“We haven't changed our view,” Mr. Ketchum said. “We've been at this for four years now. The SRO approach is the most effective, least duplicative way to oversee [advisers]. If an SRO is not approved, the SEC should be given more resources to oversee [advisers]. If an SRO is not approved, the SEC should be given more resources to address a significant investor exposure. Any way you look at it, the SEC needs more resources.

A 2011 SEC study mandated by the Dodd-Frank financial reform law indicated that the SEC could conduct annual examinations of only 8% of the approximately 12,000 advisers under its aegis at the time. After some adjustments ushered in by Dodd-Frank, the SEC now oversees about 11,000 advisers.

Read More

Topics: FINRA, RIA, Richard G. Ketchum, Investment Advisors, SEC, Compliance, Dodd-Frank Act, regulation.

Dodd-Frank Act Challenge Gets Crushed

Posted by Jack Duval

Jan 24, 2013 9:30:41 AM

Thompson Reuters reports that a U.S. Chamber of Commerce challenge to five new Dodd-Frank Act rules has been sent packing by Judge Beryl Howell.  (TR)  Here's the key paragraphs:

But if business groups thought the APA was a silver bullet to kill off Dodd-Frank regulations, a ruling this week by U.S. District Judge Beryl Howell of Washington provides some bullet-proof armor to federal agencies. Howell was considering a challenge by the Investment Company Institute and the U.S. Chamber to the CFTC's rule requiring registration of mutual funds that engage in derivatives trading. The business groups made the familiar arguments that the agency had not adequately considered the costs of the new rule or the benefits of requiring mutual funds already regulated by the SEC to submit to another regulator. Howell resoundingly rejected the theory, concluding that under the U.S. Supreme Court's 2011 ruling in Judulang v. Holder, the "mere fact" that a regulation carries costs and burdens does not make that rule arbitrary and capricious.

Howell went even further, calling for deference to the CFTC and to Congress, which specified its intentions in Dodd-Frank. "While the CFTC must consider and evaluate the costs of its rules pursuant to its obligations under the (Commodities Exchange Act), as Judulang makes clear, the CFTC is not required to promulgate only rules that have low or no costs," she wrote. "Rather, the agency is simply required to show that they 'considered' and 'evaluated' the costs of the rule. Therefore, the suggestion that the court should find an agency's actions arbitrary and capricious because regulations carry costs is unavailing. Furthermore, the plaintiffs' emphasis on the costs and burdens of the final rule obscures the overall purposes and benefits of the rule. Where the final rule is 'moored' to the 'purposes and concerns' of Dodd-Frank, and well within the agency's discretion, and where the agency determines that the costs of the final rule are outweighed by its benefits, this court finds no reason for finding that the agency acted in a manner that was arbitrary and capricious."

This, plus the Obama re-election means that Dodd-Frank will be with us for quite a while.
Read More

Topics: litigation, investments, Dodd-Frank Act, regulation.

Finra Annual Conference May 20-22 | Washington, D.C.

Posted by Jack Duval

Jan 13, 2013 5:16:16 AM

Finra has announced it's annual conference topics.  (Finra)  FYI, if you can't make it down to Washington, you can live stream it for $700 (for non-members).  (I have used the Finra streaming software before and it works well.)

Topics will include:

  • Anti-Money Laundering

  • Branch Office Inspections

  • Business Continuity Planning

  • Consolidated Audit Trail (CAT) and Large Trader Reporting

  • Cyber Security

  • Enforcement Developments

  • Ethics for Securities Attorneys

  • Examinations

  • Financial and Operational Considerations

  • Fraud Prevention

  • JOBS Act

  • Municipal Securities

  • Outside Business Activities

  • Private Placements

  • Retail Sales of Complex Products

  • Small Firm Compliance Practices

  • Social Media and Communications With the Public

  • Suitability

  • Supervision

  • Technology Priorities for Broker-Dealers


Detailed session descriptions can be found here.



Read More

Topics: FINRA, streaming, private placements, litigation, arbitration, suitability, complex products, investments, supervision, Annual Meeting, Complex Investments, Compliance, Dodd-Frank Act, regulation., Complexity, education

Swap Exchanges Could Eat 30-50 Percent of Brokers Revenue

Posted by Jack Duval

Jan 4, 2013 2:40:02 AM

Reuters reports that new Dodd-Frank Act rules could drive 30-50 percent of swap trades to exchanges, leaving brokerages looking for ways to replace billions of revenue. (Reuters)

See our previous coverage of Dodd-Frank Act regulations on the swap markets here and here.

Read More

Topics: Swaps, exchanges, broker dealer, Dodd-Frank Act, regulation.

Dodd-Frank Act Driving Compliance Hiring

Posted by Jack Duval

Dec 28, 2012 2:05:41 AM

Hedge funds and private equity funds are having to build out their compliance capabilities due to new rules under the Dodd-Frank Act, the New York Law Journal reports.  (NLLJ)  The most interesting fact of the article may be this:

In addition, scores of regulations have been issued under Dodd-Frank and there are more to come. Only one third of the 398 requirements under Dodd-Frank have been written into rules, according to a Davis Polk & Wardwell analysis. Another third have been written into proposed rules while the final third have yet to be proposed.

"If the pace of new regulation continues the way we've seen in the last year or two, I think more and more [financial services] firms will be adding to their legal and compliance departments," said Adam Reback, a chief compliance officer at hedge fund J. Goldman & Co. "It means more filings, it means more leg work, it means more monitoring. You just need more people to get it done" and more resources.

See our previous coverage of the Dodd-Frank Act here, here, here, and here.
Read More

Topics: Dodd-Frank, Investment Advisors, SEC, Compliance, private equity fund, Dodd-Frank Act, hedge funds, regulation., New York Law Journal

Subscribe to Email Updates

Recent Posts

Posts by Topic

see all