Regulatory Compliance E-newsletter - October
Posted On 10/7/2014 12:35:00 PM
Feature of the Month
Your Holiday Gift from NRS – Helping to Complete Your Firm’s Branch Exams on Time
With only two and a half months left in 2015, it’s time to ask yourself – am I on target to complete my branch audits before year end, or will I be working through the holidays?
It’s that time of the year when you are booking last minute travel with overpriced flights to those remote locations, driving to airports with heavy eyes, waiting in long lines, and dealing with weather delays all in the name of completing branch exams before the year ends. And if the travel issues that are inherent during life on the road aren’t stressful enough, back at the office the work continues to accumulate while you are away.
Give yourself a gift this year and call in NRS’ Field Audit Solutions Team to make this a great year end! NRS’ Clients minimize year-end stress, manage year end travel costs and mitigate compliance risk by engaging NRS’ team of compliance professionals to do the heavy lifting.
NRS' team of full-time, experienced auditors are waiting to get to work on your behalf, acting as an extension of your compliance program. Not only do we complete your on-site exams, we handle the scheduling and confirmation with the branches, provide a customized pre-audit request list to help the branch prepare for the audit, and we do all the traveling - providing you with a stress-free audit process from start to finish.
NRS Field Audit Solutions Clients enjoy:
- Quality Compliance Examinations - Because NRS auditors perform more than 2,500 audits per year, we’ve seen it all. We have the experience and you have peace of mind knowing that your year-end exams will be completed on time, on budget and to NRS’ high standards. We audit according to your audit program expectations, while eliminating conflict of interest and adding new and experienced perspectives.
- Fixed Expense - All NRS audits are billed as a flat fee and include all travel and miscellaneous expenses - no surprises. Eliminate unpredictable end of the year, holiday travel expenses that can cause a significant increase in the budget. Your CFO will love this!
- Efficiency – With NRS on your team, we take care of the field work and leave you the freedom to manage your compliance programs and to address corrective actions for your branches, finishing the year on a positive note. No stress, no hassle, no unfinished exams!
Give us a handful of locations and allow us to demonstrate our value – we’re pros at this. And yes, prepare to enjoy the holidays with a bit less stress.
Let NRS be your compliance ally, contact us today!
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One source for new regulations and tracking compliance requirements
The process of remaining current, gathering, tracking and managing all of the required compliance information can be a manual, time consuming and inefficient process without an easy to use compliance solution.
NRS ComplianceGuardianTM offers your firm a variety of tools including email alerts to keep your time consuming tasks simple, streamlined and up-to-date.
Investment advisers can utilize the research tools within Guardian to review state registration requirements as well as federal and SRO regulations. For broker-dealers, Guardian offers your firm a Registered Representative tracker tool that aggregates and manages data about your registered reps that’s critical for compliance such as: licenses, appointments, registrations or continuing education requirements.
Whether you are an investment adviser or a broker-dealer, ComplianceGuardian is an easily customizable solution that assists in the management, tracking and monitoring of compliance requirements.
For more information contact NRS at 860-435-0200 or sign up for a demo today.
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Differentiate Yourself and Your Firm by Earning the NRS IACCP® Designation
In 2015, many investment adviser compliance professionals include education in their plans as a way to both help advance their careers and stay-up to date on the current regulatory and compliance requirements and initiatives. Often, a standard reaction of compliance professionals is to take a course when a new SEC rule is released. While this reaction fills an important need, the industry is demanding a more structured and encompassing approach to investment adviser compliance education.
The NRS Investment Adviser Certified Compliance Professional®(IACCP) Program, co-sponsored with the Investment Adviser Association (IAA), is a professional education program granting the designation, Investment Adviser Certified Compliance Professional (IACCP), to individuals who complete an online and/or in-person instructor-led program of study, pass a certifying examination and meet its work experience, ethics and continuing education requirements.
The NRS IACCP program:
- Provides participants and their firms with a solid understanding of current regulations and rules required for investment advisers, including rule changes mandated by the Dodd-Frank Act
- Provides resources to help strengthen the firm's compliance program and promote continuous learning within the firm
- Encourages candidates to apply what they learn as they learn it
- Signals recognition of advanced compliance knowledge and skill level to help differentiate you from other compliance professionals
- Allows firms that educate compliance personnel to add another cost- and time-effective risk management tool
- Demonstrates the firm's commitment to an educated workforce and a strong culture of compliance
- Helps advance compliance as a profession
- Supports the community of compliance professionals
For those who want to take the first step toward advancing their investment adviser compliance education with a less intensive curriculum, the NRS Investment Adviser Core Compliance Program provides a foundation with focus on the first level of compliance courses. By completing 10 courses and submitting an Ethics assessment, compliance professionals can earn a Certificate of Achievement, which can then be applied for credit in the future toward the IACCP Program requirements. Review the Core Program requirements.
Earning the IACCP designation helps identify you as a committed compliance leader and demonstrates your firm's commitment to compliance. Enroll in IACCP or Core at any time of year and begin certifying your investment adviser compliance knowledge. For more information or to enroll, contact us today.
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Noted Quarterly FINRA Disciplinary Actions – Taking Steps to Avoid Being Named
FINRA publishes quarterly reviews to provide firms with a sampling of recent disciplinary actions involving misconduct by registered representatives. The following are taken from the October, 2015 quarterly review. NRS feels that a review of these actions is helpful for broker-dealers in giving them some insight of various behaviors for which they should be on the lookout. Routinely reading these quarterly reviews is also a helpful exercise for both compliance and supervisory personnel. Making an assumption that “these things can’t/don’t happen here” is not only naïve, but dangerous.
While it is nearly impossible to “deter” and/or “detect” willful violative behavior, firms should determine whether or not additional training, supervision and oversight could have prevented any of the following from occurring. Mistakes and misguided judgements occur and when they do, the regulators will be asking about training, supervision and oversight. Were they adequate or did they fail in such a way as to “allow” the violations to occur?
Misrepresenting Material Facts and Making Unsuitable Recommendations - This case involved 59 investors in a private placement offering, nearly all of whom lost their entire investment. The representative failed to verify that the metals, milling and mining company’s notes were collateralized, did not confirm that the collateral had any value, and misrepresented to prospective investors that collateral adequately secured their investments. In so doing, the representative willfully and recklessly misrepresented material facts in connection with his sales of the metals, milling and mining company’s notes to investors, in violation of Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) (manipulative and deceptive devices), Exchange Act Rule 10b-5 (employment of manipulative and deceptive devices), and FINRA Rules 2020 (use of manipulative, deceptive, or other fraudulent devices) and 2010 (ethical standards). The representative’s failure to satisfy his reasonable basis suitability obligations violated NASD Rule 2310* (suitability) and FINRA Rule 2010 (ethical standards). For all of his misconduct, FINRA barred the representative in all capacities. The representative’s willful violation of the Exchange Act also results in his statutory disqualification.
Engaging in Undisclosed Outside Business Activities and Undisclosed Private Securities Transactions and Submitting a False Compliance Questionnaire - FINRA settled a matter involving a registered representative who engaged in outside business activities without notifying his firm, submitted a false compliance questionnaire to his firm, and participated in a private securities transaction without seeking or obtaining his firm’s approval. The representative provided financial advisory services to a personal friend who was not a customer of the broker-dealer that employed him.
Without notifying his firm, and receiving written approval, for an outside business activity, the representative analyzed and made recommendations concerning the friend’s investment portfolio, attended conference calls and meetings related to the friend’s current and potential investments, and prepared correspondence and held a power of attorney on the friend’s behalf. For these activities, the representative was paid approximately $20,000 over a four-year period. Failure to provide his firm with written notice of the outside business activities violated NASD Rule 3030 and FINRA Rule 3720 (outside business activities). By submitting a compliance questionnaire to his firm, in which he stated that he was not engaged in any outside business activities, he violated FINRA Rule 2010 (ethical standards).
In addition, the representative entered into a written loan agreement with the friend in which the friend agreed to lend the representative nearly $158,000 to assist him with the purchase of a “tax lien certificate” related to real property in Illinois. The friend intended to purchase the other half of the tax lien certificate and the representative and friend ultimately completed the transaction for the purchase of the certificate through a third-party investor. The representative and friend then attempted to sell their ownership interest in the tax lien certificate for a profit, relying on the third-party investor’s efforts to identify prospective purchasers and handle the sale negotiations. In correspondence, the representative referred to himself as a co-owner of the certificate, but he did not provide written notice to, or obtain permission from, his firm to participate in the investment, violating NASD Rule 3040 (private securities transactions) and FINRA Rule 2010 (ethical standards).
Permitting a Firm to Conduct a Securities Business While Net Capital Deficient, Filing Inaccurate FOCUS Reports, and Causing a Firm to Maintain Inaccurate Books and Records - FINRA settled a matter involving a CFO/FINOP who permitted a firm to conduct a securities business while net capital deficient, filed inaccurate Financial and Operational Combined Uniform Single (FOCUS) Reports on a firm’s behalf, and caused a firm to maintain inaccurate books and records. According to the firm’s written supervisory procedures (WSPs), as the CFO and FINOP, the individual was responsible for maintaining the accuracy of the firm’s books and records, including the firm’s general ledger, trial balance and balance sheet. He was also responsible for calculating the firm’s net capital. The CFO/FINOP permitted the firm to conduct a securities business while it was net capital deficient by more than $16,000 at one point and $39,000 a month later. The individual failed to ensure that the firm’s general ledger, trial balance and balance sheet accurately reflected the firm’s liabilities, and failed to accurately compute the firm’s net capital, resulting in the firm’s filing of inaccurate FOCUS Reports, violating FINRA Rules 4110(b)(1) (capital compliance), 4511 (books and records) and 2010 (ethical standards).
Exercising Discretion in a Customer’s Account – A registered representative effected nearly 200 discretionary transactions in a customer’s fee-based securities account without obtaining the customer’s prior written authorization or his firm’s written acceptance of the account as discretionary. The account was a non-discretionary account, and the firm did not permit discretion in these types of accounts. Although the representative did not speak to the customer concerning each transaction, he relied on his discussions with the customer to execute the trades. By exercising discretion in the customer’s account without written authority, the representative violated NASD Rule 2510(b) (discretionary accounts) and FINRA Rule 2010 (ethical standards).
Falsifying Documents Related to Customer Accounts - A representative falsified six documents related to five customer accounts, reusing original customer signatures from previously executed documents and altering the date, tax withholding amount or distribution dollar amount to effect transactions for the customers. The representative altered the documents by applying “white-out” to change the dates of the customers’ signatures and adding new dates. In several instances, the representative used white-out to change the percentage of tax withholding amounts and the dollar amounts of the disbursements.
Although each of the customers authorized the transactions that the altered documents effected, the customers were unaware that the representative altered the documents, and they did not authorize the representative to reuse their prior signatures. Although the representative altered the documents to expedite transactions for the convenience of the customers, the firm’s written procedures prohibited altering documents in any manner, including the methods that the representative employed in these situations. The representative’s falsification of the customer account documents violated FINRA Rule 2010 (ethical standards).
Possessing Unauthorized Materials During the Uniform Combined State Law Examination (Series 66) - FINRA settled a matter involving a registered representative who possessed unauthorized materials while she sat for the Uniform Combined State Law, or Series 66, Examination. The study guide for the Series 66 examination advises applicants that the examination is conducted as a closed-book test. Applicants also must agree to abide by FINRA Test Center Rules of Conduct prior to beginning any examination, under which applicants are not permitted to possess any notes, formulas or study materials during an examination. The representative was found to possess notes and formulas relating to the subject matter of the examination, violating FINRA Rule 2010 (ethical standards).
Using a Personal Email Account to Conduct Firm Business, Causing a Firm to Maintain Inaccurate Records, and Failing to Disclose Private Securities Transactions – In this case a registered representative who used a personal email account to conduct firm business, caused his firm to maintain inaccurate records, and failed to disclose his participation in private securities transactions. The representative certified that he would comply with the firm’s prohibition against using a personal email account for firm business, and that he would exclusively use his firm-issued email account. Despite his certifications, the representative used a personal, Web-based (aol.com) email account to conduct firm business, which in turn, caused his firm to fail to comply with its recordkeeping obligations. The representative’s use of his personal email to conduct firm business violated NASD Rule 2110, FINRA Rule 2010 (ethical standards), NASD Rule 3110 and FINRA Rule 4511 (books and records).
Additionally, the representative signed a Memorandum of Understanding to invest in certain gold transactions and a Non-Recourse Monetization Agreement to invest in a cash-backed bank instrument, after which, to fulfill the terms of the Memorandum of Understanding and Non-Recourse Monetization Agreement, the representative wired $200,000 from his personal bank account to a bank account controlled by the individual soliciting his participation in the investments. The representative participated in both private securities transactions without giving prior written notice of such transactions to the firm or obtaining the firm’s written approval, violating NASD Rule 3040 (private securities transactions) and FlNRA Rule 2010 (ethical standards).
NRS Consultants can provide an objective third-party perspective, incorporating regulatory requirements and NRS’ deep knowledge of industry best practices to help firms effectively deal with the issues surrounding the training, supervision and oversight of registered individuals, offering guidance in the implementation of appropriate controls.
Contact us to schedule a consultation assessment, or call your NRS Representative at 1-860-435-0200.
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