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Regulation and Compliance > Federal Regulation > FINRA

FINRA Developing 'Credit for Cooperation' Guidance; SEC Aims to 'Bring Cases Faster'

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The Financial Industry Regulatory Authority is working on more “credit for cooperation” guidance, which should be out this year, Susan Schroeder, FINRA’s enforcement chief, said Monday.

Meanwhile, the Securities and Exchange Commission will continue to “bring cases faster,” according to the agency’s enforcement chiefs.

FINRA rules require self-reporting of certain violations. The anticipated FINRA guidance will help explain to broker-dealers what kinds of cooperation go beyond what is required and thus deserve “credit” in the form of a reduced sanction, Schroeder said during a panel discussion at the Securities Industry and Financial Markets Association’s annual compliance and legal event in Phoenix.

The new guidance will update Regulatory Notice 08-70, which was issued in 2008.

“We have a self-reporting rule, Rule 4530, which requires certain types of potential violations to be self-reported, and that’s part of the reason that we’re following up this year with more guidance on credit for cooperation,” Schroeder said. “Not all self-reports are created equal.”

Meanwhile, retail investor protection continues to be a priority for the Securities and Exchange Commission, as well as leveraging the agency’s resources “to bring results faster,” stated Steven Peikin, co-director of the agency’s enforcement division, on the SIFMA enforcement panel with Schroeder. An example of this, he said, is the recent self-reporting share-class selection disclosure initiative announced last year.

“We brought the first cases just a week ago; 77 cases against 79 advisors that resulted in the voluntary disgorgement and return to investors of $125 million,” Peikin said.

The 12b-1 fee share class issue was a “problem that we’d seen broadly across the Street” and within a year “broadly swept up a pretty significant problem and achieved pretty good results.”

Added Stephanie Avakian, co-director along with Peikin: “The idea of bringing cases faster in large part to get money back to investors, where that’s part of the goal … or as we say all of the time, our actions have substantially more impact when they’re brought close in time to when the conduct happened, so you will see us try to find different ways to bring cases faster, particularly those cases where we think there are strong messages.”

Digital Assets

Peikin stated that the SEC has, “over the past couple years we’ve carved out sort of a legal landscape” around digital assets. In the initial coin offering space, “if you give somebody money and you get a token in exchange and you hope that they’re going to take your money and build an enterprise and you’re going to profit off that, sounds a lot like an initial public offering. The fact that you labeled it a ‘coin’ doesn’t make it exempt from the federal securities laws, in general.”

The SEC has also seen “people try to trade off of the euphoria around distributed ledger technology and the like to commit fraud.”

Most of the SEC’s focus, he continued, is on when these assets “fall into the definition of a security and what are the appropriate remedies and relief.”

When they don’t fall under that definition?

“They’d largely be commodities at that point,” added James McDonald, director of enforcement at the Commodity Futures Trading Commission.

The regulators are working to ensure that “we’re taking the same view of the digital assets, in this asset that’s actually developing in real time,” McDonald added.

— Check out 95% of Spot Bitcoin Trading Volume Is Fake: Report on ThinkAdvisor.


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