In May of this year, the SEC fined Bloomberg Tradebook LLC for $5 million, censured the firm, and issued a cease and desist order for misleading customers about how their orders were routed. Specifically, the SEC found that the Firm made material misrepresentations in regard to order routing. They omitted material facts about how they handled certain customer trade orders.
An outside business activity (“OBA”) is defined as a registered person having any business activity outside the scope of the relationship with their member firm. As defined in FINRA Rule 3270, this may include acting as an employee, independent contractor, sole proprietor, officer, director, or partner for any other entities besides the member firm. Generally, the activity may also involve compensation or a reasonable expectation of compensation.
Associated person disclosures and attestations are not a “one size fits all” list of documents. The purpose of disclosures and attestations is to educate your employees on the expectations of the firm based on firm procedure and regulatory mandates. Another important purpose is to give representatives a chance to know relevant updates and changes that may require pre-approval and/or added compliance responsibilities.
Failure to timely update information on an individual form U4 may lead to potential fines and suspensions for a registered person, especially if the act is willful. Examinations and sweeps performed by FINRA generally reveal exceptions.
Complete reliance on third-party outsourcing may negatively impact your compliance program. Other firms’ mistakes can serve as valuable cautionary tales to guide your decision-making process when establishing and maintaining relationships with third-party vendors.
The June 30th compliance deadline for Regulation Best Interest and Form CRS is quickly approaching. It presents new compliance requirements for broker-dealers and investment advisers engaging in a retail business.