More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- 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 Financial Industry Regulatory Authority’s decision to postpone considering an updated rule to require that brokers’ recruitment compensation be disclosed when they switch firms has one industry attorney speculating the rule may be on the chopping block.
FINRA CEO Richard Ketchum said in late May that FINRA’s broker bonus disclosure plan would be brought up at the self-regulator’s July 11 board meeting. However, a FINRA spokesperson said Wednesday that “due to scheduling considerations,” the rule had been pushed to a later date.
Securities lawyer Patrick Burns (right) says the delay is “questionable,” and that FINRA provided no clear explanation for tabling the broker bonus rule. He questions whether “the rule is going to get killed through delays.”
FINRA’s board did decide at its July 11 meeting, however, to allow FINRA to file with the SEC proposed amendments to FINRA Rule 8312, which would require that nonregistered firms and reps be included in its BrokerCheck database as well as approved a rule to require that debt analysts disclose the conflict-of-interest information they reveal to equity investors. The rule must be ratified by the Securities and Exchange Commission before it takes effect.
FINRA’s broker bonus proposal states that “customers would benefit from being told the material conflicts arising from a registered person being paid recruiting incentives to change firms.” Under the plan, brokerage firms would have to inform customers about any special incentive package given to a recruit that totals more than $50,000.
In early March, Burns told AdvisorOne that with SIFMA’s support, “a rule in this area seems to be a foregone conclusion,” with “the only thing to be worked out is the details of the rule.” Even three of the top wirehouses—Merrill Lynch, Morgan Stanley and UBS—gave their OK to FINRA’s plan.
However, FINRA may have postponed the rule in order to iron out any potential kinks.
The SEC also approved in late June amendments to FINRA Rule 8313, which allows the self-regulator to air more information about brokers who are the subjects of disciplinary actions and complaints.
FINRA can now release on its Disciplinary Actions online database a copy of any disciplinary complaint or decision it issues, bringing it in line with the practices of other federal regulators.
As the SEC’s approving order states, allowing FINRA to publicly post its disciplinary complaints and decisions “would better align FINRA’s publication standards with the practices of the SEC and other regulators. The SEC publishes on its website copies of enforcement actions, including administrative proceedings and complaints filed in federal court, regardless of the type or nature of sanctions imposed. FINRA believes that to avoid confusion, the availability of disciplinary information generally should not differ among regulators.”
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