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Regulator’s Compliance Message

Are the SEC and FINRA articulating their message of compliance requirements clearly? Has the volume become overwhelming? What do you think?

The regulators are aggressively pursuing their agenda with broker-dealers and registered investment advisor firms like never before and ‘bad actors”’ will be punished severely. What do they mean by, ‘bad actors’? Does this apply to individuals only or can a firm be a bad actor as well? “No customer complaints, we must be fine” – so stay the course. Stay alert to the two perspectives regulators have when it comes to administering their rules; firm level compliance and field level supervision.

1. Will the SEC examine broker-dealers or are they focused only on RIAs?
2. With compliance becoming ever more complex, where do you focus your already stretched resources – in the field or
within the firm?
3. How do you balance the two so that you and your firm build or maintain a respected compliance program and

First, the SEC will examine broker-dealers and registered investment advisors as they have jurisdiction over both. Some may think that the SEC’s main objective is to exam RIAs as historically only a few have been examined each year and that approximately 40% have never been examined. Don’t be lulled into complacency here. On several occasions the SEC has performed oversight exams on FINRA. The SEC may announce an exam shortly after FINRA has completed their routine on-site or may show up unannounced at your Home Office or a branch or OSJ. In theory, a broker-dealer could have three exams – FINRA, SEC and State. The level of BD exams by the SEC could potentially increase with the addition of the SEC’s new technology of NEAT and MIDAS; not including FINRA’s CARDS which is under consideration. CARDS comment period concluded this March. FINRA has decided CARDS will not require individual account owner information such as account registration, address, account number or tax id, but that doesn’t imply fewer examinations.

Secondly, are you confident in the administration and operation of your compliance program? If your answer is “yes” you are in very good shape. You know that your firm is in compliance and you know the strengths and weaknesses of not only your compliance program but also the talents of your compliance team and their capacity to handle additional responsibilities when new rules are put into law. The answer we hear from many, however, is either “no” or “not sure”. If so, your best course of action is to complete an assessment of your compliance program including your policies and procedures as well as reviewing your human capital. One thought is to have your internal team focus on the field supervisory responsibilities as these are everyday events and you know your advisors. Contract with an outside consultant to assist with the firm level compliance as this is more manageable and does not usually require interaction with your advisors in the field.

Third, push your outside consultant to assist in the support of the firm compliance requirements; this will free up your compliance team to support the firm daily. If permissible, you can assign dedicated staff for certain advisors or compliance functions. This will strengthen not only the compliance person’s expertise but will also build the advisor and compliance person’s relationship. Don’t lose sight, however, that the compliance person’s role and responsibility is to you and the firm. Weekly meetings or an outside audit conducted by your consultant will uncover any conflicts of interest.

This is a brief discussion on compliance and we at RegMaven would invite you to register on our site for a 30-minute discussion on your specific thoughts. See us at or call at 603-965-7791

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