The Securities and Exchange Commission (“SEC”) voted to adopt amendments to the electronic record-keeping, prompt production of records and third-party record-keeping service requirements. The amendments will align record-keeping requirements with current technological developments to modernize how broker-dealers (“BDs”) preserve electronic records.

Topics covered include: Continuing Education Changes, Cybersecurity: Emerging Industry Priorities and Threats, Reg Best Interest: Lessoned Learned, Social Media and the Rise of Finfluencers, Remote Supervision, Communications: Compliance and Current Developments, FINRA’s Examination and Risk Monitoring Program, Vendor Management: Due Diligence and Oversight, Senior and At-Risk Investors, Consolidated Audit Trail (“CAT”), and Alternative Investments and Complex Products.

The Securities and Exchange Commission (“SEC”) advised brokerage and investment advisory firms to clearly disclose their fees and explain their conflicts of interest more thoroughly on the Form Customer Relationship Summary (“Form CRS”). The SEC required the implementation of the Form CRS in June 2020 as part of the disclosure requirement for Regulation Best Interest.

The SEC tends to educate broker-dealers and advisers by enforcement. Ironically, GAO found the Securities and Exchange Commission (“SEC”) does not have documented policies and procedures to determine which findings and corrective actions to track regarding its oversight of the Financial Industry Regulatory Authority (“FINRA”). Seems the pot has been calling the kettle black.

The Securities and Exchange Commission (“SEC”) sanctioned eight firms for failures within cybersecurity policies and procedures that resulted in email account hacks that exposed personal information of customers and clients. The eight firms sanctioned were either registered broker-dealers, investment advisory firms, or both.

Effective June 5, 2019, The Securities and Exchange Commission (“SEC”) adopted Form CRS, a relationship disclosure form. “CRS” stands for customer or client relationship summary). Form CRS required SEC registered investment advisers and FINRA member, SEC registered broker dealers to electronically file and deliver a detailed summary to prospective and new retail investors by June 30, 2020, implementation date.

FINRA has announced it has reached the final stages of the change in fingerprinting processing for broker- dealer firms and funding portals, as the regulator onboards new fingerprint provider, Sterling.

The Securities and Exchange Commission (“SEC”) announced that TIAA-CREF Individual and Institutional Services LLC (“TC Services” or the “Firm”) will pay $97 million to affected investors for violations related to retirement rollover recommendations. The charges related to the settlement include inaccurate and misleading statements and a failure to adequately disclose conflicts of interest to participants of the TIAA employer-sponsored retirement plan (“ESP”).

On June 30, 2021, FINRA announced that Robinhood Financial, LLC (“Robinhood” or the “Firm”) was fined $57 million and ordered to pay $12.6 million in restitution, plus interest, to affected customers. The sanctions were largely based on the Firm’s system outages in March 2020, misleading information provided to customers and the Firm’s option approval process.

June 22, 2021, the Securities and Exchange Commission (“SEC”) charged Loci, Inc. (“Loci” or the “Firm”) and Chief Executive Officer, John Wise for making materially false and misleading statements and ultimately violating Sections 5(a) and 5(c) of the Securities act by offering and selling unregistered securities. Loci is a Delaware corporation based in Reston, Virginia providing intellectual property search services for inventors through software platform, InnVenn. Neither Loci, Mr. Wise, nor securities have been registered with the SEC.

RNR Securities LLC was fined $15,000 for failing to inspect its Office of Supervisory Jurisdiction (“OSJ”) properly. RNR Securities’ written reports concerning inspections of its OSJ branch and non-OSJ branch failed to evidence proper testing of RNR Securities’ policies and procedures. The report did not describe how the review was performed nor how RNR Securities determined that there were no issues or concerns.

Firm Fined Wealthforge Securities, LLC. Wealthforge Securities, LLC (“Wealthforge”) was censured, fined $100,000 and required to provide training to all personnel related to FINRA Rule 2210 for providing misleading statements to retail customers. The Firm was found to have distributed communications to retail customers that violated content standards of FINRA Rule 2210.

In February 2021, FINRA replaced two of their prior publications - the Report on FINRA Examinations Findings and Observations and the Risk Monitoring and Examination Priorities Letter - with the Risk Monitoring and Examination Activities Report. This new report was released to inform member firms’ of relevant practices to incorporate into their compliance programs and provide insight to improve ongoing regulatory operations.

On February 1st, 2021 the Securities and Exchange Commission (“SEC”) charged three individuals with defrauding hundreds of retail investors out of more than $11 million dollars through fraudulent and unregistered digital asset securities offerings. According to the SEC’s complaint filed in U.S District Court for the Eastern District of New York, from December 2017 through May 2018 Kristijan Krstic and John DeMarr falsely claimed Start Options was “the largest Bitcoin exchange in euro volume and liquidity.”

The Financial Crimes Enforcement Network (“FinCEN”) released two announcements of note in January. One involves a proposed rule involving digital transactions. The rule is aimed at tightening gaps for potential money laundering due to the increase in popularity of virtual currency. The second announcement involved an enforcement action against Capital One (“the Bank”).

FINRA’s Board of Governors met via zoom on December 9, 2020. The Board approved three proposed rulemaking amendments and also approved FINRA’s 2021 proposed budget. One of the proposed amendments that was approved was to further enhance the Continuing Education Program (“CE”). The amendment applies to FINRA Rules 1210 and 1240, strengthening FINRA’s CE program.

BGC Financial, L.P. On August 13, 2020, BGC Financial, L.P was censured, required to update its Written Supervisory Procedures (“WSP”) and fined $100,000. The Firm consented to the sanctions and to the entry of findings that it reported transactions to the Trade Reporting and Compliance Engine (“TRACE”) with an incorrect time of trade execution, therefore reporting transactions to TRACE that the Firm was not required to report.

FINRA released a regulatory notice warning all member firms of a phishing attempt from an organization trying to impersonate FINRA. Phishing is a cybercrime where targets are contacted by email by someone pretending to be a legitimate organization to lure individuals into responding with sensitive data.

On September 1, 2020 the Securities and Exchange Commission (“SEC”) filed an emergency action charging investment adviser Matthew O. Clason with stealing thousands of dollars from an advisory client. Clason was an investment adviser representative of a registered investment adviser as well as a registered representative of a broker-dealer.

Firms Fined. Exane, Inc. was fined$50,000 for failing to establish management controls and supervisory procedures to manage the financial and regulatory risks of the business. The firm’s credit limit controls were not automated nor applied on a pre-trade basis to prevent order entries that exceeded the pre-set capital thresholds for each customer.