More On Legal & Compliancefrom The Advisor's Professional Library
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
- Dealings With Qualified Clients and Accredited Investors Depending upon an RIAs business model and investment strategies, it may be important to identify “qualified clients” and “accredited investors.” The Dodd-Frank Act authorized the SEC to change which clients are defined by those terms.
FINRA ordered firms to pay $34 million in restitution in 2012—a significant jump over the $19.4 million the regulator ordered firms to repay in 2011, according to FINRA’s 2012 Annual Review.
The review, released in early January, also found that the regulator took 1,541 disciplinary actions last year, a small boost over the 1,488 actions FINRA took in 2011. Fines FINRA levied against firms and individuals decreased to $68 million in 2012 from the $71.9 million levied in 2011.
In 2012, FINRA expelled 30 firms from the securities industry, barred 294 individuals and suspended 549 brokers from association with FINRA-regulated firms. In 2011, FINRA barred 329 individuals and suspended 475.
Disciplinary highlights in 2012 involved complex products, including exchange-traded funds (ETFs), structured products and nontraded REITs, as well as research analyst conflicts, inadequate disclosure and mispricing, FINRA said.
In 2012, FINRA also says that it initiated 1,846 routine examinations, more than 800 branch office examinations and 5,100 cause examinations in response to events such as customer complaints, terminations for cause and regulatory tips.
As part of a redesign of the platform used to conduct exams, FINRA says that it “developed new technology to support and streamline the process with new technology, tools, data and new exam content that, along with the underlying risk hierarchy, make up the new, modernized framework for the risk-based examination process.” This framework, FINRA says, “is critical to identifying and prioritizing areas of risk exposure at firms, and subsequently, helping FINRA determine the appropriate regulatory response to those risks and improve our ability to quickly make decisions regarding pursuing ‘red flags’ and other areas of heightened focus.”