News & Events –

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).

The road to implementation of the Department of Labor’s fiduciary duty rule continues to be bumpy. The latest turn may mark yet another delay of the Rule. Specifically, the requirements of the Rule that took effect on June 9, 2017 may be extended from its original, full compliance date of January 1, 2018 to July 1, 2019. Today we report on the DOL’s recent moves and offer recommendations for financial services firms to consider as they navigate the ongoing regulatory and compliance uncertainty. 

At the SEC, CFTC and FINRA, key personnel changes are finally taking place, and with them some repositioning around new agendas. Today we bring you an update on recent developments and appointments to watch.

This is the second installment in our ongoing look at FINRA’s efforts to address high risk brokers, also referred to by FINRA as “bad actors.”  Our first installment discussed  the set of proposals recently approved by FINRA’s Board of Governors to identify high risk brokers and enhance tools for disciplinary actions, examinations and ongoing surveillance. In a speech before the Georgetown Center for Financial Markets and Policy, Robert Cook, President and CEO of FINRA, set forth FINRA’s comprehensive approach to the self-regulatory agency’s existing and developing programs and practices to protect investors and markets from bad actors.

Reactions to the issuance of a final rule by the Consumer Financial Protection Bureau (“CFPB”) prohibiting the use of mandatory arbitration clauses to block consumers of certain financial products and services from filing class action lawsuits have been swift and partisan.

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.