Yet Even More Brain Droppings - Broker-Dealer Edition

Comedians are some of our best modern-day philosophers, and as I noted earlier, George Carlin was one of the best. He captured his musings, beliefs, etc. in many books. One of which is Brain Droppings, which I shamelessly stole as an inspiration for my micro-blog on LinkedIn.

FINRA Alerts Firms to Increased Ransomware Risks

FINRA issued a very useful reminder regarding cybersecurity in Reg Notice 22-29. Broker-dealers keep your BCP current and handy. Associates think before you click on that link.

FINRA Provides Update on Sweep: Option Account Opening Supervision and Related Areas

FINRA announced at last week’s Firm Grouping Conference that it had just released guidance for broker-dealers that service options transactions. In particular, the regulator posted its thoughts on approving investors to open options accounts, making required disclosures to them, and finally, supervising their transactions. This is welcome as options pose challenges for any compliance officer. For example, the account opening process must meet the requirements of many FINRA rules, most notably Rule 2360. Communications do not only have to satisfy Rule 2210, but also Rule 2220. Let’s not even mention regulatory reporting in the form of the LOPR. (And for those keeping track at home, the WOPR is the computer that haunted Matthew Broderick in the movie “WarGames”. The LOPR is the Large Options Position Report that haunts compliance staff.)

FINRA Provides Guidance on Succession Planning

Like many, I vividly recall having to make a number of unexpected decisions in early March 2020. I think that we can all agree that life does not always go according to plan.

This is about the time of year where many broker-dealers and registered investment advisers are working on their annual compliance reviews. Giving additional thought to contingency planning – even if it is to affirm the current art – is worthwhile exercise to include in this process.

FINRA Suspends Rep in First Reg BI-Related Action

While it certainly is notable that FINRA suspended its first registered representative for a Reg BI violation, I am not sure that these facts give the broker-dealer industry any clarity on how the SRO is going treat this rule. A 158% cost-to-equity ratio over a 15-month period would have been problematic under any standard.

SEC Adopts Rule Amendments to Modernize How Broker-Dealers Preserve Electronic Records and Enhance the Electronic Recordkeeping Requirements for Security-Based Swap Entities

The Securities and Exchange Commission updated the standards applicable to broker-dealers and certain other parties for maintaining and preserving electronic records, using third-party recordkeeping services, and producing these records. This is long overdue.

FINRA Alerts Firms to Recent Trend in Fraudulent Transfers of Accounts Through ACATS

FINRA is to be commended for using its vantage point to help the broker-dealer industry identify emerging trends or issues. Particularly for those that impact investors directly, such as the fraudulent use of the ACATS system discussed in Reg Notice 22-21.

However, this Notice seems short on guidance on what to actually do about this issue. That is, other than review various FINRA and other rules. This seems self-evident. If I may suggest, a firm that makes or receives ACATS transfers would be well-served by starting with a fresh look at its procedures for escalating new accounts or transfer requests for additional review, especially if it takes these instructions electronically. At risk of sounding like Yogi Berra, once the assets are gone, they are gone.

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Thank you for reading this article. Please know that I wrote it for informational purposes only (some may consider it ADVERTISING MATERIAL) and did not intend for it to be legal advice or to form an attorney-client relationship with you – especially in jurisdictions where I am not licensed to practice law. I encourage you to seek your own counsel to help you with your specific situation. To that end, I invite you to contact me if you would like to discuss my services.

I enable broker-dealers, registered investment advisers and their associates to spend more time growing their business by helping them address a wide range of legal and compliance responsibilities.