Cryptocurrency (also spelled crypto currency) is everyone’s new favorite hot topic. Even if you’ve done no research into the topic, you’ve probably heard of the most (in)famous cryptocurrency: Bitcoin. But what are cryptocurrencies? And how are they affecting the securities industry?
Cybersecurity programs remain a significant priority for financial services industry regulators, including the SEC, FINRA, and state securities regulatory agencies. As mentioned in FINRA’s 2018 Annual Regulatory and Examination Priorities Letter, member firms need to have cybersecurity programs in place and such programs must capable of protecting sensitive information, including personally identifiable information of clients, from both internal and external threats. Over the past couple of years, awareness of cybersecurity risk has increased dramatically. However, as awareness increases, so does the sophistication of cybersecurity threats. And even a robust cybersecurity program can be compromised by something as simple as an employee opening an email attachment that contains malware. So, what can a firm do to combat phishing and spearphishing attacks, ransomware attacks, fraudulent third-party wires, etc.?
[Continued from Crowdfunding: Funding Portal Registration – Part I]
Funding Portal Registration Process
Firms seeking to register as funding portals must do so via completion of an application process with FINRA. The registration process for a funding portal is similar to, but much less comprehensive and exhaustive, the New Member Registration process completed by applicants wishing to become broker-dealers.
Title III of the Jumpstart Our Business Startups (JOBS) Act, enacted in 2012, provides guidance and regulation relating to securities offered or sold through crowdfunding activities. In 2015, the Securities and Exchange Commission (SEC) added onto this initial act by creating a new ruleset that implemented a regulatory framework for intermediaries that facilitate such crowdfunding transactions. This includes regulations for a relatively new intermediary: the funding portal. Securities Act Section 4(a)(6) (otherwise known as “Regulation CF”) requires that intermediaries in crowdfunding transactions be registered with the SEC as either a broker-dealer or a funding portal.
Last spring, FINRA began a review of its rules regarding Outside Business Activities (OBAs) and Private Securities Transactions (PSTs). The review was meant to evaluate the efficiency and efficacy of FINRA Rule 3270 (Outside Business Activities of Registered Persons) and FINRA Rule 3280 (Private Securities Transactions of an Associated Person). FINRA concluded that while Rules 3270 and 3280 are fulfilling their intended purposes, they could benefit from changes to make the rules more contemporary and present-day and to better align the goal of protecting investors with the reality of the current regulatory landscape and business practices. Based on its findings, FINRA has proposed a new rule governing OBAs and PSTs, meant to replace the current rules and reduce unnecessary burdens on member firms.
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…
What is the difference between OFAC and FinCEN? Both organizations are bureaus of the U.S. Treasury department; however, FinCEN requires searches for suspected criminals and OFAC searches identify known criminals. Read More…
FINRA Rule 3130 (formerly known as NASD Rule 3013) requires the CEO to CERTIFY that the firm has a PROCESS to adopt adequate Supervisory Policies and Procedures. The goal of the Rule is to “promote regular and meaningful interaction between senior management and compliance personnel to ensure that compliance is given the highest priority by a member’s senior executive officers.” Read More…