Asgard’s newsletter included notes of importance regarding industry updates and trends, helpful links and FINRA disciplinary action trends.

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.

In November 2021, FINRA adopted changes to the Regulatory Element component of its Continuing Education (“CE”) rules which, in part, now requires registrants to complete annual CE as opposed to the previous three-year cycle.

The compliance date for the new Marketing Rule is November 4, 2022 (“Compliance Date”). Effective on the Compliance Date, investment advisers may no longer choose to comply with the previous advertising and cash solicitation rules. The SEC staff will be withdrawing certain staff statements related to previous advertising and cash solicitation rules effective on the Compliance Date. Advertisements distributed after the Compliance Date will be subject to the new Marketing Rule. Recently, the SEC published a Risk Alert addressing examinations focusing on the new Marketing Rule.

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.

On December 18, 2020, the Department of Labor (“DOL”) expanded the definition of fiduciary advice under the Employee Retirement Income Security Act (“ERISA”) to include recommendations related to retirement rollovers and IRA investments, including recommendations to a plan participant to rollover assets from a plan to an IRA. The definition was expanded to protect Retirement Investors form conflicts of interest related to compensation surrounding rollovers.

An AWC was issued, and the Firm was censured and fined $55,000 for failing to timely report to Trade Reporting and Compliance Engine (TRACE) transactions in TRACE-eligible corporate debt securities. It was found that reports were late due to several issues at the Firm. These issues included delays related to manually reporting trades involved with foreign affiliates and operational errors. Additionally, the Firms personnel caused delays such as untimely matching of tickets in the Firm’s system and making amendments to trade terms outside of the 15-minute reporting time frame.

The Firm was censured, fined $550,000 and ordered to pay $456,155, plus interest, in restitution to customers. The Firm failed to establish, maintain, and enforce a supervisory system and WSPs designed to achieve compliance with FINRA and the Municipal Securities Rulemaking Board (MSRB) rules related to the firms registered representatives’ recommendations of high yield corporate and municipal bonds. FINRA found the Firm’s policies and procedures did not address suitability factors that should be considered when recommending high-yield bonds.

The 2022 Report on FINRA’s Examination and Risk Monitoring Program was released, providing information to firms that may help update and improve compliance programs. The report covers topics FINRA deems important based on 2021 firm examinations. For each section, FINRA identified relevant rules, key considerations for compliance programs, findings from recent exams, effective practices and helpful resources for firms when reviewing their own procedures and controls related to compliance. FINRA has also identified new topics for firms to monitor for 2022.

On February 9th, 2022, the SEC voted to propose cybersecurity risk management rules for registered investment advisors, registered investment companies and funds. There were also proposed amendments made related to rules that govern investment advisers and fund disclosures.

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.

On December 17th, 2021, the Securities and Exchange Commission (“SEC”) released an order stating that employees of J.P. Morgan Securities, a JPMorgan Chase & Co. (“JP Morgan”) broker-dealer subsidiary, were often engaging in business communications on personal devices. Employees utilized un-captured applications such as WhatsApp and personal email addresses for business communications. The firm did not preserve these un-captured communications, therefore violating book-and-record-keeping requirements. JPMorgan has admitted to the SEC’s findings and understands that it was unlawful, claiming to have adjusted their policies to accommodate for these errors.

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”) filed a complaint in the U.S. District Court for the Northern District of New York in Buffalo against Cygnus Capital Management and the estate of Richard Ventrilla (“Ventrilla”) alleging that they had defrauded 22 investors of $989,000.

The Securities and Exchange Commission (“SEC”) amended the accredited investor definition, allowing more investors to qualify to participate in private offerings. Formerly, to qualify as an “Accredited Investor,” an individual had to have a net worth greater than $1 million, annual income exceeding $200,000 for the past two years or $300,000 combined income (if married.)

The Securities and Exchange Commission (SEC) filed an asset freeze to stop Lisa McElhone and Joseph W. LaForte’s fraudulent scheme worth $500 million. The scheme involved raising investor funds via unregistered securities offerings for Complete Business Solutions Group. Complete Business Solutions is a cash advance company that conducts business as Par Funding.

On September 4, 2019, the  Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert related to principal trading and agency cross transactions under Section 206(3) of the Advisers Act. These topics were identified in recent examinations of investment advisers.