DUTIES AND CONFLICTS

Culture

Accounts at Other Broker-Dealers and Financial Institutions

NASAA reported that for the first time since it has collected enforcement data, more registered members of the securities industry than nonregistered members were named in enforcement actions. In its 2016 Enforcement Report on 2015 Data, which includes responses from 52 jurisdictions throughout the United States, NASAA reported that state securities regulators conducted 4,487 investigations in 2015 and took 2,074 enforcement actions. These actions led to more than $538 million in restitution ordered returned to investors, fines of $230 million and criminal relief of 1,282 years, including incarceration, probation and deferred prosecution. States also continued to serve a vital function by screening bad actors before they have a chance to conduct business with unsuspecting investors. A total of 2,990 securities licenses were withdrawn in 2015 as a result of state action, and an additional 738 licenses were either denied, revoked, suspended or conditioned.

• FINRA Regulatory Notice 16-22 (June 2016):  SEC Approves Consolidated FINRA Rule 3210 (Accounts At Other Broker-Dealers and Financial Institutions)

 

Enforcement Actions Against Licensed Broker Sales Agents

Through NASAA’s U.S. members’ vigilance, in 2015, state securities regulators brought more than 2,000 enforcement actions against more than 2,700 respondents. 

NASAA Enforcement Report “2016 Report on 2015 Data” (Prepared by NASAA Enforcement Section, September 2016)

General

Know-Your-Customer and Suitability Obligations

FINRA Rule 2090 (Know Your Customer) requires a firm to use “reasonable diligence, in regard to the opening and maintenance of every account, to know (and retain) the essential facts concerning every customer.” FINRA Rule 2111 (Suitability) requires a firm or associated person to “have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.”

Additional information about the “know your customer” and suitability obligations—including Notices, Frequently Asked Questions, and a New Account Application Template—can be found on FINRA’s Suitability Web Page.

FINRA Industry Issues: Suitability

FINRA reminded firms of their supervisory obligations regarding their registered persons’ use of senior designations. Firms are encouraged to adopt practices to strengthen their own supervisory procedures, as appropriate to their business.

FINRA Regulatory Notice 11-52 (November 2011):  FINRA Reminds Firms of Their Obligations Regarding the Supervision of Registered Persons Using Senior Designations

• FINRA Tools and Calculators: Investment Professional Designations

Supervision

FINRA Supervision Topic Page

This site highlights rules 3110, 3120, and 3130 on supervisory procedures.  It also contains links to related notices, guidance, news, and investor education.

• Supervision Topic Page

Political Contributions

SEC Approves FINRA ‘‘Pay-To-Play’’ and Related Rules

The Securities and Exchange Commission (SEC) approved FINRA Rules 2030 (Engaging in Distribution and Solicitation Activities with Government Entities) and 4580 (Books and Records Requirements for Government Distribution and Solicitation Activities) to establish “pay-to-play” and related rules regulating the activities of member firms that engage in distribution or solicitation activities for compensation with government entities on behalf of investment advisers. The rules become effective on August 20, 2017.

FINRA Regulatory Notice 16-40 (October 2016): SEC Approves FINRA “Pay-To-Play” and Related Rules

 

Amendments to MSRB Rule G-37 on Political Contributions and Prohibitions on Municipal Securities Business

The amendments to MSRB Rule G-37, on political contributions and prohibitions on municipal securities business, and related amendments to MSRB Rules G-8, on books and records, and G-9, on preservation of records, and Forms G-37 and G-37x became effective on August 17, 2016. In particular, the amendments to Rule G-37 extend the core standards under Rule G-37 to municipal advisors, their political contributions and the provision of municipal advisory business. The amendments are specifically designed to address potential “pay-to-play” practices by municipal advisors consistently with the MSRB's existing regulation of dealers.

• MSRB Regulatory Notice 2016-06 (February 17, 2016):  Amendments to MSRB Rule G-37 on Political Contributions and Prohibitions on Municipal Securities Business and Related Amendments are Deemed Approved Under the Securities Exchange Act of 1934

Effective August 17, 2016, the Rule G-37 Amendments extend the core standards under Rule G-37 to municipal advisors, their political contributions and the provision of municipal advisory business. The amendments are designed to address potential “pay-to-play” practices by municipal advisors consistently with the MSRB’s existing regulation of dealers.

• MSRB Regulatory Notice 2016-18 (August 4, 2016):  MSRB Files Amendment to Rule G-37 to Clarify its Application to Contributions before August 17, 2016