News & Events –

There are many diverse players and moving parts in the evolving anti-money laundering (AML) regulatory landscape. Since we last checked, there have been congressional hearings on the domestic compliance obligations mandated by the Bank Secrecy Act; the introduction of two bipartisan legislative initiatives; and the passing of a final deadline for member states to implement EU AML regulations into their national laws. The activity reflects the ongoing political dynamic of how best to address the scourge of money laundering and terrorist financing.

On June 28th, the U.S. House Appropriations Committee published a proposed $20.2 billion financial services and government budget bill covering, in part, 2018 funding for the Securities and Exchange Commission. A day earlier, in testimony before the House Subcommittee on Financial Services and General Government, SEC Chair Jay Clayton set forth the independent agency’s 2018 priorities.

Results published in a recent North American Securities Administrators Association (“NASAA”) survey about firms’ practices and policies applicable to senior customers demonstrate that broker-dealers have a variety of processes and procedures in place to identify and report suspected diminished capacity or abuse. “Among the encouraging findings,” reported NASAA, “are that virtually all the broker-dealers had both internal processes to identify and internally report suspected diminished capacity or senior financial abuse, and trained their staff on these policies.” This and other findings were published in a study released on June 15, 2017, the latest effort by NASAA to continue to move the industry forward on the subject of serving seniors in the financial system.

For securities regulators and regulated entities, concern over cybersecurity is taking on a new urgency. Hardly a day goes by without a news item highlighting serious allegations of international hacking, fraud, data theft or some form of attempted electronic manipulation. Faced with the fact that governmental institutions, private enterprises and personal assets seem increasingly vulnerable, authorities appear to be ramping up their engagement. Federal and state officials are issuing new rules, authorities are updating guidance and enforcement agencies are organizing for a fight.

In one of his first official acts as SEC Chair, Jay Clayton served notice that the SEC will assert itself in the long-standing debate on the duties owed by investment advisors and broker-dealers. In a public statement issued only a few days before the implementation of parts of the Department of Labor (“DOL”) Fiduciary Duty Rule, Mr. Clayton staked out the SEC’s claim to broad jurisdiction over the issue. 

Only a month ago, Bates reported on House Speaker Paul Ryan’s desire to push for swift legislative action on the Financial CHOICE bill, (now known as H.R.10). It was clear then that the extreme partisanship surrounding House Financial Services Committee Chair Jeb Hensarling’s reform efforts would make passage of comprehensive legislative changes to the Dodd-Frank Act a challenge. The bill itself was reported out of the House Committee on a party-line vote 34-26, with all nineteen amendments proposed by Democrats summarily rejected.

On January 4, 2017, FINRA President and CEO Robert Cook issued the organization’s Annual Regulatory and Examinations Priorities Letter which focused on the “blocking and tackling issues of compliance, supervision and risk management.” The letter contained a commitment to “devote particular attention to firms’ hiring and monitoring of high-risk and recidivist brokers, including whether firms establish appropriate supervisory and compliance controls for such persons.” Making good on this commitment, FINRA’s Board of Governors approved a set of proposals.

In a series of posts last year, we looked at the growing industry perception that regulators were ramping up their enforcement efforts against chief compliance officers (“CCOs”) for anti-money laundering (“AML”) violations. At the time, several issues were impacting industry perceptions, including a proposed rule change by New York State regulators to hold CCOs personally liable for corporate wrongdoing, an ongoing dialogue within the industry about the market implications of targeted enforcement against CCOs, and the development of company strategies anticipating the necessity of mitigating those consequences.

Last week, House Financial Services Committee Chairman Jeb Hensarling unveiled an updated version of the Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs Act (a/k/a “the Financial CHOICE Act), a bill first introduced in 2016 as HR 5983. The new version of the Act includes a dedicated effort to roll back the purported regulatory overreach of Dodd-Frank combined with an ambitious grab-bag of financial services reforms. If enacted, the reforms would dramatically change the financial services landscape.

Last month, President Trump announced his intention to nominate Commodity Futures Trading Commission (“CFTC”) acting head J. Christopher Giancarlo to serve as permanent chairman. Mr. Giancarlo, a Republican and former executive at financial services firm GFI Group Inc., was an Obama-era appointee who joined the Commission in 2014.

The Securities and Exchange Commission gave final approval to a FINRA proposal to protect senior investors and shield financial firms from liability when reporting suspected fraud against elderly clients. We have been covering this proposal through its many stages (see Bates Reporting: here; here; here and here.) Effective February 8th 2018, new FINRA Rule 2165 (Financial Exploitation of Specified Adults) and amendments to FINRA Rule 4512 (Customer Account Information) will require full compliance.

Details from a breakout panel at SIFMA’s 2017 Compliance and Legal Society Annual Seminar in San Diego called “Private Client Enforcement Priorities,” moderated by Caroline Hall.  The panel focused on how firms have responded to FINRA’s enforcement activity over the past year.  Providing their perspective and joining Caroline Hall (Raymond James Financial, Inc.) on the panel were Jeffrey Coverdell (Wells Fargo & Co.), Cece Mavico (LPL Financial LLC), Susan Merrill (Sidley Austin LLP), and Susan Schroeder (FINRA).  Some of the areas the panelists focused on were the UIT examination letters, AML and compliance personnel liability, and high-risk brokers.

Brushing back criticisms that he is too much of a Wall Street insider to effectively regulate the securities industry, Jay Clayton testified before the Senate Banking Committee on the independent approach he would take if confirmed as the next Chair of the Securities and Exchange Commission.

During the January 26th 2017 SIFMA-Bates Group Leaders and Experts Forum: Managing Regulatory Investigations and Enforcement Matters in the Big Data-Driven Age, former Chief of the SEC Complex Financial Instruments Unit, and current partner in Simpson Thacher’s Government Investigations Group, Michael J. Osnato, Jr. discussed how big data is changing the way the SEC investigates and prosecutes misconduct. Mr. Osnato shared insights gleaned from his then-recently completed tenure at the agency, a period he termed the “golden age of enforcement.” 

The President of the North American Securities Administrators Association (“NASAA”) is supporting the besieged fiduciary duty rule and has advocated for the independence of state securities regulators. In NASAA’s official recommendations to the 115th Congress of the United States, President Mike Rothman urged “Congress and the Administration to promote financial regulatory policies that hold true to our shared responsibility to look out for investors and preserve the integrity of our capital markets.”

On February 8, the Financial Industry Regulatory Authority (FINRA) released a new report on the status of recommendations made by the FINRA Dispute Resolution Task Force. The 13-member Task Force was formed in July 2014 to “improve the transparency, impartiality and efficiency of FINRA's securities arbitration and mediation forum.”