More On Legal & Compliancefrom The Advisor's Professional Library
- Whistleblowers A whistleblower is any individual providing the SEC with original information related to a possible violation of federal securities law. The Dodd-Frank Act established a whistleblower program that enables the SEC to reward individuals who voluntarily provide such information.
- Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
The biggest threat to broker-dealers is their outside business dealings, warned a Pershing executive leading a panel of compliance experts at the Pershing Insite conference.
“This is how bad reps are stealing clients’ money,” said Pershing managing director and managing counsel Joan Schwartz. At a Wednesday session focusing on compliance and regulation at the conference, in south Florida, the panel addressed a number of issues that both broker-dealers and RIAs are facing, including complying with FATCA and the SEC’s large trader rule, which may apply to some RIAs.
Turning back to the issue of broker-dealer compliance, Schwartz pointed out to the home office personnel in attendance, “since you approve these” outside business operations, make sure you conduct periodic reviews. “You are the most important person to stop” such frauds, she said.
Some broker-dealers are not only asking about those outside dealings, but also scrutinizing reps’ personal checking accounts and their spouse’s checking accounts to look for anomalies. In addition, she suggested that BD compliance staff make unannounced visits to reps' offices and even conduct random calls to end clients to ensure that those clients are not being taken advantage of by reps.
Another member of the panel, Pershing director Lynn Young, suggested broker-dealer compliance officers take an even more direct approach. “Open that locked file cabinet” in reps’ offices, she suggested, speaking both literally and figuratively. “Look at the outward appearance of the rep as well,” she said, to discern if said rep had recently been spending beyond his or her usual means, even to the point of determining if he’s now sporting expensive jewelry or driving a particularly expensive car.
In a separate breakout session on Thursday at Insite, Ann Costello, the head of government affairs for Pershing's parent, BNY Mellon, looked at what Congress, President Obama and the two political parties will be focusing on this summer and following the election.
“Don’t expect much action” from Congress before the presidential election in terms of legislation or even regulation in Washington, she predicted, but do expect “mostly messaging” from congressional leadership designed to help the two parties’ presidential candidates. GOP leadership will put forward proposals on the economy, taxes and energy projects, she predicted, and to “put it on the record” that the party would extend the Bush-era tax cuts. Democratic leadership in Congress will in turn likely put forward legislation to enact the so-called “Buffett tax” on millionaires, as the Oracle of Omaha has suggested to help cut the deficit.
She also said that the presidential election was too close to call, but if Obama wins re-election, we can expect regulators in the SEC and the Labor Department to be “unleashed,” while if Romney wins, the directors of those agencies will be out of a job, with the result that regulators will be “able to exercise more discretion.”
Turning to what likely will be an important lame-duck session of Congress following the November election, the former Goldman Sachs lobbyist said the biggest threat was that the mandatory sequestration cuts scheduled to kick in on Jan. 1, 2013 might well lead to a recession, since (failing Congressional action on the budget) all those spending cuts and tax increases would take place in one year, dealing a blow to the economy. As for the Bush-era tax cuts, she said there may well be a bipartisan compromise that would include higher rates on the "wealthy," with a specific definition of what constitutes wealthy to be determined. The compromise would likely include higher taxes on dividend (at some level between the current 15% rate and 30%) and that capital gains taxes would be allowed to rise, but that there would be much talk about a longer-term fix by “reforming the tax code.”