Regulatory Trends for 2017

Regulatory Trends for 2017


 You can download a full copy of the slides from this webinar. 



Full video transcript available below:


Welcome and thank you for joining today's webinar hosted by me Joe Boyhan of MCO and Brian Rubin and Adam Pollet of Eversheds Sutherland. With that I'll hand you over to my co-hosts.


Now we'll take a look at some of the other trends to watch for in 2017. At the SEC, as you all know Jay Clayton as Chairperson by the Senate last week. We're still waiting for two new commissioners to be nominated and Commissioner Stein's term is up in June so there will be significant turnover at the highest levels there. It's likely that enforcement will not be a top priority under this new administration based on the speeches that Mr. Clayton has already given.


On a legislative front, Congress is already seeking to roll back provisions of Dodd-Frank. Just last week the House Financial Services Committee voted to send the Choice Act to the House floor.


On the judicial front, we're waiting for a key Supreme Court decision on whether the SEC can seek disgorgement after the five year Statute of Limitations for civil penalties. The key issue there is whether disgorgement constitutes a forfeiture. We're expecting a decision on that case next month. So specific issues that may impact broker dealers and investment advisors include for broker dealers, compliance with Bank Secrecy Act reporting requirements including SARs, AML issues, and suitability issues including excessive trading in client accounts.


For investment advisors, they'll be focused on conflict of interest like we had mentioned including what Brian mentioned earlier 12b-1 fees and trade allocation issues more generally.


So just like the SEC, FINRA has a new head Robert Cook. He's been on a listening tour and he's said that his listening tour will continue because there's always things to listen to. Among the things he said is that he has a concern. I think all people would say that they have a concern with regard to rule making by enforcement. There have been a number of new initiatives. One is a Summary Report of Common Examine Findings. That way firms can learn what other firms are going through so they can fix issues before FINRA comes in.


There's also a compliance initiative for smaller firms that don't necessarily have the resources to hire compliance consultants or law firms and then while recently FINRA has been doing its FINRA 360 focusing on enhanced communication and transparency and they've reached out to members and constituents to try to find out how it can do its job better.


With regard to what the future holds, it's impossible to know. On the one hand, with the possible slowdown of SEC enforcement, it's possible that FINRA could step in to fill that void. On the other hand, it's possible that FINRA will hear the same message that the SEC has heard and that the SEC appears to be sending and it may be that FINRA will slow down. There won't be the broken windows type cases that SEC and FINRA have focused on and that both regulators will focus on real flaws.


FINRA's priorities letter talked about blocking and tackling and a lot of the issues were similar to what we saw in 2016 and we discussed these issues already which seem to be the primary focuses so we won't go into them again. The only one that we didn't talk about is high-risk and recidivist brokers.


The priorities letter outlined a three step approach for deterring and detecting such representatives. First, FINRA has established a dedicated exam unit to identify and examine brokers who may pose a high risk to investors. Second, FINRA is going to review firms' supervisory procedures for hiring or retaining statutorily disqualified and recidivist brokers and then third, FINRA will evaluate firms' branch office inspection programs as well as the supervisory systems for branch and non branch office locations including focusing on independent contractor models.


So FINRA is trying to get the bad apples out of the industry in addition to focusing on the issues that we already talked about.



Eversheds - Sutherland

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