Change to Definition of Qualified Client

The Securities and Exchange Commission (“SEC”) recently announced an upcoming change to the definition of “qualified client” as defined in Rule 205-3 under the Investment Advisers Act of 1940 (“Advisers Act”) that will become effective August 15, 2016. This applies to any Registered Investment Adviser (“RIA” or “Investment Adviser”) that earns performance based fees.

To provide some background, Section 205(a)(1) of the Advisers Act generally prohibits an investment adviser from entering into, extending, renewing, or performing any investment advisory contract that provides for performance Read More…

FINRA Rule 2273-Recruitment Practices

FINRA has long been concerned with practices used by broker-dealers and their newly registered representatives to convince clients to transfer accounts from the representative’s old firm as well as the fees that are sometimes associated with such transfers.  To address this concern, FINRA Rule 2273 requires  broker-dealers to deliver an educational disclosure to potential clients in connection with recruitment practices and account transfers. Read More…

New Anti-Money Laundering Program Requirements

Recently, the Financial Crimes Enforcement Network (“FinCEN”) adopted a final rule on Customer Due Diligence (“CDD”) Requirements for Financial Institutions.   As a result, firms will be required to address the new requirements within their AML program.  Firms must be in compliance with its provisions by May 11, 2018.

Initially, firms’ AML programs were required to meet, at a minimum, the statutorily enumerated “four pillars” that were established by the Bank Secrecy Act (BSA).  The four pillars included the following: Read More…

Pay-to-Play: Capital Acquisition Brokers

Earlier this year, FINRA began accepting applications for firms wishing to register as Capital Acquisition Brokers.  A Capital Acquisition Broker (“CAB”) is a firm that engages in a limited range of activities.  Such activities include advising companies and private equity funds on capital raising and corporate restructuring, and acting as placement agents for sales of unregistered securities to institutional investors under limited conditions.  CABs cannot carry or maintain customer accounts, handle customers’ funds or securities, accept Read More…

FINRA Rule 4530, Customer Complaints in the Social Media Era

As technology continues to advance, the Financial Industry Regulatory Authority “FINRA”) must address how certain regulations will be interpreted as it relates to social media platforms.  FINRA Rule 4530 requires firms to promptly report to FINRA, no later than 30 calendar days, after it knows or should have known that the firm or an associated person of the firm is the subject of any written customer complaint involving allegations of theft or misappropriation of funds, securities, or of forgery. Under the rule, a customer is defined as any person, other than a Read More…

After the SEC and Equifax Hacks, Firms Should Revisit Their Cybersecurity Program

Recently, two major cybersecurity breaches have been in the news which have been very unsettling for many Americans.  First, Equifax, one of the nation’s largest credit bureaus, was hacked exposing 143 million people’s financial data.  Second, the Securities and Exchange Commission’s (“SEC”) EDGAR filing system was hacked and it is believed that the hackers made off with information that was used to make money illegally in the stock market. Read More…

Order Audit Trail System (OATS)

Established by FINRA, the Order Audit Trail System (OATS),  is an integrated audit trail of order, quote and trade information for all NMS (National Market System) stocks and OTC equity securities. As part of FINRA’s surveillance activities, Rules 7400 through 7470 (OATS Rules) and Rule 4554, OATS requires electronic auditing and reporting capabilities on all stock and equity orders, quotes, trades and cancellations. According to Rule 7430 (updated from NASD Rule 6953), all computer clocks and timestamping devices must be synchronized to be regarding a time source as designated by FINRA. This data can be collected during the day and transmitted to OATS in one or more files at a convenient time; however, reports for events that occur during particular OATS Business Days must be reported by 5am EST the following calendar day.  Read More…

FINRA Updates Private Placement Filer Form Pursuant to FINRA Rules 5122 and 5123

FINRA has updated the form that firms must use to file offering documents and information pursuant to FINRA Rules 5122 (Private Placements of Securities Issued by Members) and 5123 (Private Placements of Securities) (Filer Form). The updated Filer Form, which became available in the FINRA Firm Gateway in May of 2017, includes new and updated questions that will facilitate review of the filed material and eliminates other questions.  Read More…