FINRA Information Notice Enhancements to FINRA’s Disclosure Review Process Relating to Public Financial Records
FINRA is making enhancements to its disclosure review process that will permit firms to rely on FINRA’s verification process for purposes of compliance with the requirement to conduct a search of public records relating to bankruptcies, judgments and liens. Specifically, beginning on July 9, 2018, FINRA will conduct a public records search within fifteen calendar days from the date of an applicant’s Form U4 (Uniform Application for Securities Industry Registration or Transfer) and provide member firms any information resulting from such a search if such information is different from what was reported in the applicant’s Form U4. These enhancements are likely to: (1) reduce the costs to firms associated with conducting these public records checks, which often involve finding and hiring a vendor; (2) result in more timely reporting of disclosure information to the benefit of regulators, investors and firms; and (3) result in a significant reduction of late disclosure fees related to judgments and liens.
MSRB Regulatory Notice 2018-09 Request for Comment on Draft MSRB Rule G-36, on Discretionary Transactions in Customer Accounts, and Related Draft Amendments
The MSRB is requesting comment on draft MSRB Rule G-36, on discretionary transactions in customer accounts, and related draft amendments. Draft Rule G-36 would re-establish a standalone rule to govern discretionary transactions by brokers, dealers and municipal securities dealers and their associated persons in customer accounts by consolidating and explicitly articulating existing requirements for such transactions. Additionally, draft Rule G-36 would establish limited, new requirements for discretionary transactions in customer accounts effected by individuals other than dealers and their associated persons. The MSRB is considering these rule changes to provide clarity to all dealers, securities firms and banks, on their obligations related to discretionary transactions in customer accounts, to improve consistency with similar rules of other regulators and to fulfill its previously-stated intention to address these types of transactions in a separate rule. The MSRB believes this potential rulemaking is consistent with its current strategic goal to assist dealers and other regulated entities with compliance with MSRB rules, as it would streamline, and bring consistency and uniformity to, the rules relating to discretionary transactions in customer accounts, which the MSRB believes would, in turn, assist dealers and their associated persons in complying with these requirements and improve regulatory efficiency, while imposing a relatively small burden on them to achieve compliance.
MSRB Regulatory Notice 2018-08 SEC Approves Advertising Rule Changes for Dealers and Municipal Advisors
The MSRB received approval from the SEC on May 7, 2018 to amend MSRB Rule G-21, on advertising by brokers, dealers or municipal securities dealers, and to adopt new MSRB Rule G-40, on advertising by municipal advisors. The SEC also approved a technical amendment to MSRB Rule G-42, on duties of non-solicitor municipal advisors. With these rule changes, as well as the previously announced development of the municipal advisor principal examination (Series 54), the MSRB, in the exercise of authority granted by the Dodd-Frank Wall Street Reform and Consumer Protection Act, has completed the core of its Congressionally mandated comprehensive regulatory framework for municipal advisors. The rule changes will become effective on February 7, 2019.
FINRA Regulatory Notice 18-18 FINRA Extends Effective Date of Margin Requirements for Covered Agency Transactions
In June 2016, the SEC approved FINRA’s rule change amending FINRA Rule 4210 to establish margin requirements for Covered Agency Transactions. FINRA is extending, to March 25, 2019, the effective date of the requirements pursuant to the rule change that otherwise would have become effective on June 25, 2018.
FINRA Regulatory Notice 18-19 FINRA Amends Rule 3310 to Conform to FinCEN’s Final Rule on Customer Due Diligence Requirements for Financial Institutions
FINRA has filed for immediate effectiveness amendments to FINRA Rule 3310 (Anti-Money Laundering Compliance Program) to reflect the Financial Crimes Enforcement Network’s (FinCEN) adoption of a final rule on Customer Due Diligence Requirements for Financial Institutions (CDD Rule). The implementation date is May 11, 2018. This implementation date aligns with the compliance date for FinCEN’s CDD Rule.
FINRA is revising its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. Thus, when a respondent’s disciplinary history, and history of arbitration awards and arbitration settlements together with the violation found in a disciplinary case, form a pattern, the Sanction Guidelines advise that adjudicators should consider imposing more stringent sanctions.
FINRA Regulatory Notice 18-15 Guidance on Implementing Effective Heightened Supervisory Procedures for Associated Persons With a History of Past Misconduct
FINRA is publishing this Notice to reiterate the supervisory obligations of member firms regarding associated persons with a history of past misconduct that may pose a risk to investors. FINRA Rule 3110 (Supervision) requires member firms to establish and maintain a system to supervise the activities of each associated person that is reasonably designed to achieve compliance with applicable securities laws and FINRA rules. An effective supervisory system plays an essential role in the prevention of sales abuses, and thus, enhances investor protection and market integrity. As such, FINRA has long emphasized that member firms have a fundamental obligation to implement a supervisory system that is tailored specifically to the member firm’s business and addresses the activities of all its associated persons. This Notice highlights particular instances where heightened supervision of an associated person may be appropriate. Firms are encouraged to adopt the practices that are outlined in this Notice to strengthen their own supervisory procedures, as appropriate to their business.
FINRA Regulatory Notice 18-16 FINRA Requests Comment on FINRA Rule Amendments Relating to High-Risk Brokers and the Firms That Employ Them
FINRA seeks comment on proposed rule amendments that would impose additional restrictions on member firms that employ brokers with a history of significant past misconduct. These brokers, while relatively small in number, may present heightened risk of harm to investors, and any misconduct by them also may undermine confidence in the securities markets as a whole. The rule proposals would strengthen the existing controls, some of which are highlighted below, FINRA has applied to such brokers to further promote investor protection and market integrity.
FINRA Regulatory Notice 18-14 FINRA Requests Comment on the Effectiveness and Efficiency of Its Rule on the Annual Compliance Meeting
FINRA is conducting a retrospective review of Rule 3110 (Supervision), governing annual compliance meetings to assess its effectiveness and efficiency. This Notice outlines the general retrospective rule review process and seeks responses to several questions related to firms’ experiences with this specific rule.
FINRA Regulatory Notice 18-13 FINRA Requests Comment on Proposed Amendments to the Quantitative Suitability Obligation Under FINRA Rule 2111
FINRA seeks comment on proposed rule amendments that would revise the quantitative suitability obligation under FINRA Rule 2111 (Suitability) to more effectively address instances of excessive trading in customers’ accounts. The proposed rule amendments would remove the element of control that currently must be proved to demonstrate a violation, but would not change the obligations to prove that the transactions were recommended and that the level of trading was excessive and unsuitable in light of the customer’s investment profile.
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