The Findings Report

This blog is focused on providing Chief Compliance Officers and other compliance professionals with timely advice on avoiding regulatory deficiencies and implementing best practices to maintain a strong compliance program.
Feb 28, 2013
4:55 pm

SEC Examination Priority: Dually Registered Firms

By admin

The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) has recently communicated its examination priorities for 2013.  These priorities reflect ongoing, as well as, emerging issues which the SEC perceives as presenting heightened risk for investors and other market participants.

The SEC bases its selections on information it gathers from many sources including ongoing issues discovered during its examination programs; information gathered from its review of filings made by regulated entities; complaints received from investors; interactions with other domestic and international regulatory bodies; as well as, information circulating via industry and media publications.

One of the areas of focus for the SEC this year will be examinations of dually registered investment advisers and broker-dealers.  The SEC has focused on these firms in the past, and continues to review these firms on an ongoing basis.  During these examinations, the SEC will be coordinating its investment adviser inspection teams with members of the broker-dealer inspection staff (“joint exams”) in order to thoroughly review firms’ compliance programs under the rules and requirements addressing each aspect of the firm’s business.

Because of the ‘dual’ nature of a financial professional conducting both investment advisory and broker-dealer business (“IA/RR”), the SEC will focus its review on determining whether both the investment advisory firm and the broker-dealer have strong internal controls, policies and procedures addressing the review and approval of activities conducted by its financial professionals.

The SEC will pay particular attention to how a firm monitors and controls the IA/RR’s activities.  Therefore, firms with IA/RR’s need to establish and maintain written policies and procedures to address the oversight of its securities business on “each side” of the business.  Firms need to have in place a process to conduct ongoing suitability reviews for recommendations made by the IA/RR to their advisory clients as well as trading and suitability reviews of brokerage client accounts.  The firm should ensure that it has a methodology to review for, and determine the appropriateness of, fees and commissions as well as other conflicts of interest which may arise because of this ‘dual’ relationship with each customer’s account.

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Oct 31, 2012
9:56 am

Social Media: Best Practices to Avoid Regulatory Findings

By admin

The topic of social media is not a new one – the regulators and firms have been struggling with this issue for several years now. There are still many firms lacking policies or procedures in this area, or looking for guidance.

The below was a recent FINRA citing relating to social media:

Citing: “The firm does not specifically address social media sites such as Twitter, Facebook, Linked-In, etc., in addition to the supervision of the potential misuse of these sites and others.”

How To Avoid This Issue:

Have a clear written policy on social media, and address the following:

    (1) What is allowed and not allowed. (LinkedIn? Facebook? – And what information can be posted or transmitted?)
    (2) How social media participation will be monitored. (Will the firm set up an account and require reps to connect? Will the firm conduct internet searches on the names of reps to determine their participation? How often?)
    (3) What records will be retained to evidence this monitoring.

Other Comments:
Practically speaking, we are seeing firms permit the use of LinkedIn in a limited way. (Business card information only) The most common weakness found in this area seems to be the lack of monitoring and oversight (and/or lack of documentation of such) of Registered Reps.

Let’s assume your firm utilizes an annual compliance questionnaire in December, which asks the question about social media, and a Rep answers incorrectly that they do not participate. Or, the Rep answers correctly that they do not participate, but a few months later the Rep creates a LinkedIn account and “forgets” to notify Compliance. How is the firm identifying those situations? Several firms we have worked with utilize Google, or sign in to the social media website, and search the names of their Reps. This should be done on a regular basis, as not identifying an active social media site for 6 months could form the impression of a lax compliance procedure in this area.

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Disclaimer

ITA Compliance, LLC is providing this Blog and its contents for informational purposes only. Acting upon the information provided does not guarantee against a regulatory finding or regulatory enforcement action.