More On Legal & Compliancefrom The Advisor's Professional Library
- 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.
- Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIAs failure to stay within the scope of the Section 28(e) safe harbor may violate the advisors fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients transactions.
London-based Standard Chartered has agreed to pay a fine of $300 million, as well as to stop some of its services and suspend dollar-clearing activities for some clients, in a settlement with New York regulators.
Meanwhile, the SEC filed charges against a Houston-based penny stock company and four individuals in a pump-and-dump scheme and against a former bank executive and his friend for insider trading.
Standard Chartered to Pay $300 Million, Cut Services
In a settlement reached with the New York Department of Financial Services, London-based Standard Chartered has agreed to pay a fine of $300 million, as well as to halt some services for clients designated high risk in the United Arab Emirates (UAE) and to suspend dollar clearing for other designated high-risk clients in Hong Kong.
The settlement follows two years of independent monitoring imposed after Superintendent Benjamin Lawsky went after the bank on violations of sanctions and anti-money laundering laws. In its 2012 settlement with the regulator, Standard Chartered had agreed to be subject to the monitoring.
According to the DFS consent order, monitoring found that “SCB’s rulebook was not consistent with the majority of the actual detection scenarios, and such detection scenarios contained errors or were incomplete resulting in the SCB NY transaction monitoring system failing to detect a significant number of potentially high-risk transactions for further review,” leading to the bank’s failure to detect errors and to “adequately audit the transaction processing system.”
In addition, DFS said that “a significant number of the potentially high-risk transactions the system has failed to detect originated from SCB’s branches in the United Arab Emirates (‘SCB UAE’) and subsidiary in Hong Kong (‘SCB Hong Kong’), among others.”
As part of the settlement, the monitoring period is being extended for a further two years, and the bank is also obliged to institute the aforementioned cuts in the UAE and in Hong Kong. It is also forbidden to take on any new customers for dollar clearing without prior approval from the regulator.
Fitch Ratings pointed out in a statement that regulators are finding that bans on certain segments of business are more effective than simple fines, saying, “These restrictions may have longer-lasting implications for banks’ business profiles than one-off fines. This may be a useful way for the enforcement authorities to remedy identified weaknesses for banks more broadly, instead of withdrawing business authorization completely.”
Certainly the repercussions go beyond even the service cuts. The UAE’s central bank issued a statement in the wake of the settlement saying that that Standard Chartered “will be liable to prosecution by these companies and their owners [who are the targets of cuts in service] because of the material and moral damage” caused by the bank’s service cuts in its UAE branch.
Fitch’s statement added that the settlement with DFS suggests a “lack of sufficient internal controls and compliance mechanisms. We will assess the potential broader impact of the settlement on Standard Chartered’s ratings during the coming weeks.”
Former Bank Exec and Friend Charged With Insider Trading
Patrick O’Neill, a former executive at Eastern Bank in Massachusetts, was charged by the SEC along with his friend Robert Bray on charges of insider trading in the bank’s stock in advance of its acquisition of another institution.
According to the agency, O’Neill, who at the time was a senior vice president at Eastern, found out that the bank planned to acquire Wainwright Bank & Trust Co. He in turn tipped off Bray, a golf buddy, and Bray proceeded to sell off shares he held in other stocks so he could buy Wainwright stock — a stock he had never previously purchased.
Once the acquisition was announced and the stock price rose nearly 100%, Bray sold off what he had bought over the next few months and made almost $300,000 in illicit profits.
O’Neill, meanwhile, actually quit his job at the bank rather than answer regulators’ questions about the stock trades. He and Bray were both subpoenaed by the SEC during the investigation, but both pleaded the Fifth to the extent that neither would even admit that he knew the other.
The SEC seeks disgorgement of ill-gotten gains plus interest and financial penalties as well as permanent injunctions against future violations of the antifraud provisions.
Check out The Man Who Blew the Whistle on ThinkAdvisor.