More On Legal & Compliancefrom The Advisor's Professional Library
- Where Are We Headed? The ultimate compliance goal is to help ensure that everyone associated with an advisory firm acts ethically at all times. Advisors and RIAs should do the right thing, even when regulators are not looking over their shoulders.
- Using Solicitors to Attract Clients Rule 206(4)-3 under the Investment Advisors Act establishes requirements governing cash payments to solicitors. The rule permits payment of cash referral fees to individuals and companies recommending clients to an RIA, but requires four conditions are first satisfied.
The SEC charged UBS Securities (UBS) Thursday with faulty record-keeping practices related to short sales, and UBS agreed to pay an $8 million penalty to settle the enforcement action. The bank will also retain an independent consultant as a result of the regulatory group’s action.
“Regulators must be able to rely on a firm’s records to mean what they say, especially when those records are meant to provide the key evidence of a firm’s compliance with the law and safeguard against illegal short selling,” said George S. Canellos, director of the SEC’s New York regional office, in a press release. “UBS permitted its employees to create records that do not accurately convey the basis upon which its employees granted locates.”
Broker-dealers are required under Regulation SHO to accurately record the basis upon which it has given out “locates,” a confirmation that a broker-dealer has borrowed, arranged to borrow, or reasonably believes it could borrow the security to settle the short sale.
For its part, UBS said in a statement that it “is pleased to have resolved this matter with the SEC [and] has implemented enhancements to its Securities Lending Desk’s procedures and systems.”
According to the SEC, UBS employees routinely recorded the name of a lender’s employee even when no one at UBS had actually contacted the employee to confirm availability. The SEC’s investigation found that UBS employees sourced thousands of locates to lender employees who were out of the office and could not have provided any information to UBS on those days.
The SEC’s investigation found that since at least 2007, UBS’ “locate log” (or records) inaccurately portrayed which locates were based on electronic feeds or direct confirmation with specific lenders.
“UBS’s practices obscured inquiry into whether UBS had a reasonable basis for granting locates, and created a risk of locates being granted based on sources that could not be relied upon if shares were needed for settlement,” according to the SEC.
The SEC added, however, that it did not find that UBS executed short sales without a reasonable basis for believing it could borrow the stock to fulfill its settlement obligations.