News & Events –

This week, FINRA released its Regulatory and Exam Priorities for 2018. The Priorities Letter is intended to be a reference point for firms to prepare their compliance, supervisory and risk management programs, as well as to prepare for FINRA examinations. While most of the priorities from previous years remain in force, there are a handful of new topics and new emphases stemming from regulatory developments during 2017. Bates Research explains how these priorities have changed over time and what's in store for 2018.

FINRA has announced their regulatory and examination priorities letter for 2018.

A flurry of year-end announcements reveals a determination by state advocates toward more aggressive state protection of investors and consumers. NASAA published results from a recent survey of state regulators concerning the top investor complaints and investigations in 2017. Governor Andrew Cuomo announced a proposed new rule to amend New York’s current suitability regulation “to provide a best interest standard of care for all sales of life insurance and annuity products.” Democratic senators introduced a bill to give state Attorneys General expanded authority to ensure national bank compliance with state law. Here’s a brief look.

Legislators and regulators continue their uneven path toward a more comprehensive and inclusive framework to combat international money laundering. In the past few weeks, FINRA provided new anti-money laundering (AML) guidance to member firms as it issued a first-of-its-kind public summary of an examination of broker-dealer compliance programs. The U.S. Treasury Undersecretary for Terrorism and Financial Intelligence (TFI) announced the launch of a new FinCEN Exchange to support the TFI's approach to Bank Secrecy Act (BSA) requirements. In addition, regulatory and legislative initiatives moved forward to broaden the scope of authority for law enforcement agencies.

Only a few weeks ago, SEC Chair Jay Clayton made clear that trading in virtual currencies can present a significant risk to investors and poses unique regulatory challenges. He warned that investors are vulnerable to price manipulation and fraud because they may lack information about online platforms that list and trade virtual coins or tokens offered and sold in initial coin offerings (“ICOs”). He pledged to provide more clarity and transparency about the risks, and he promised the SEC would publish guidance for investors on standards, process, value and existing protections

Another high-profile cyber breach was disclosed last week. Uber, the app-based transportation service, announced that, in 2016, hackers stole information including names, email addresses, phone numbers and driver’s license data, related to 57 million drivers and riders. This incident is significant, not only to underscore the vulnerabilities of data on the cloud and corporate servers, but also because it highlights the serious consequences of mismanaging what is becoming an all-too-frequent occurrence.

With the latest cyber crises momentarily at bay, SEC Chair Jay Clayton is taking the opportunity to address both short- and long-term agency priorities. In a speech before the Practising Law Institute’s 49th Annual Conference on Securities Regulation, Mr. Clayton continued to set forth the agency’s near-term, narrowly focused retail and institutional regulatory priorities and articulated longer-term elements of a five-year strategic plan.

Political momentum continues to drive lawmakers’ efforts to combat elder financial abuse. In our last report on the subject, Bates considered the current state of play as indicated by the North American Securities Administrators Association’s (NASAA) survey results on (i) firm practices and policies applicable to senior customers and (ii) state securities regulator perspectives on senior financial fraud. Since then, federal and state legislatures have enacted bipartisan laws to expand agency authority over elder abuse and to better cope with guardianship issues. 

Co-Directors of the SEC Division of Enforcement, Stephanie Avakian and Steven Peikin, addressed enforcement priorities at a Securities Forum held in Washington, D.C. last week. Ms. Avakian’s formal remarks emphasized that the SEC will refocus its enforcement efforts toward the protection of retail investors and on a new integrated approach to cyber-related crime. Mr. Peikin, in widely-reported comments, described a shift in enforcement tactics, while also acknowledging resource constraints. Details after the jump.

In two notices issued last week, the Financial Industry Regulatory Authority addressed a few longstanding issues. First, FINRA proposed expanding the legal options available to investors when filing a claim against an inactive firm or associated person. Second, FINRA requested comments on allowing compensated non-attorney representatives to continue to represent customers in disputes between investors and broker-dealers. Comments on both are due December 18, 2017. In addition, FINRA Executive Vice President of Regulatory Operations Susan Axelrod (at left) offers insight on how FINRA is identifying high risk brokers.

At the CFTC a line has been drawn: the regulator will shift away from focusing on “regulating the last crisis” to ensure that they remain relevant in modern markets. Rather than reacting to market innovation, the CFTC sees a role for itself in advancing and promoting innovation. This new viewpoint was prominently discussed in the first public address of Brian Quintenz, newly sworn in as Commissioner of the CFTC. Mr. Quintenz challenged the entire approach undertaken by his predecessors toward regulating the activity of the sector.

In his first address to the North American Securities Administrators Association (NASAA), newly-elected and third-time President Joseph Borg identified key priorities for his upcoming term. He emphasized cooperation between state and federal regulators and highlighted NASAA’s commitment to strengthened enforcement, technology advancement and cybersecurity. 

Testifying at an oversight hearing before the Senate Banking Committee on September 26, 2017, SEC Chairman Jay Clayton addressed concerns over the SEC’s disclosure of a 2016 cyber-security breach involving its own EDGAR system for corporate filings, as well as the massive breach of the Equifax credit reporting agency database that put in jeopardy the personal information of over 140 million Americans. In response to these cyber incidents, the SEC is planning to utilize its new Cyber Unit, and New York State has propsed regulations that would give its Department of Financial Services the power to oversee credit reporting agencies.

This week, Bates Research sits down with experts Alex Russell and Shane Shook to talk about data analytics and regulatory enforcement, the increasingly complex responsibilities of compliance officers, and what firms should be doing to prepare in this changing technological landscape.

A FINRA arbitration panel recently assessed over $1.5 million in costs, disgorgement and punitive damages against a privately held financial services and investment firm in relation to allegations of senior financial abuse and violations of state and federal securities laws (among other claims). The outcome of this case, together with a new North American Securities Administrators Association (NASAA) "Pulse Survey" of state securities regulators on the topic of senior financial fraud, and a newly announced National Association of Attorneys General senior financial fraud initiative are the latest chapters in the story of an industry working to address elder and vulnerable clients. Bates Group has been following both the federal and state efforts to help seniors and other vulnerable investors.

The SEC is not slowing down in its extensive use of sophisticated data analytics to drive enforcement efforts. Last week, the agency brought charges against seven individuals who participated in complex insider trading schemes that netted millions of dollars in illegal profits. The case has garnered significant attention because the defendants were caught by the SEC using data analytics despite the defendants’ use of sophisticated methods and new communications technologies to evade detection. Bates has played a leadership role in the public discussion of the enforcement implications and use of big data analysis by the regulatory agencies. In this post we review some recent enforcement developments and the increasing role of the SEC’s Market Abuse Unit (MAU)’s Analysis and Detection Center (ADC).