Bates News,Compliance and Regulatory Alerts - 02-27-19

Four Challenges Facing Firms Ahead of FINRA’s 529 Share Class Initiative April 1st Deadline

Four Challenges Facing Firms Ahead of FINRA’s 529 Share Class Initiative April 1st Deadline

Firms participating in FINRA’s 529 Plan Share Class Initiative should act now to meet the regulator’s approaching April 1st deadline to self-report violations and submit a plan to remediate harmed clients. 

“Given the number of challenges firms face in assessing the potential impact on clients related to 529 plan share class purchases, firms should immediately begin to address the initiative,” warns Alex Russell, Bates Group Managing Director of Securities Litigation and Regulatory Enforcement. These challenges include:

  • Timing – Firms are facing a limited amount of time in which to assess the need to self-report 529-related supervisory failures. Firms must respond by 12:00 am EST, April 1, 2019, to participate in the initiative, with the results of their self-evaluation due by May 3, 2019. Given that the period firms are being asked to review is from January 2013 to June 2018, there is very little time to spare if you think self-reporting might be in your firm’s best interest.
  • Plan Sponsor Data – Firms may need to go to the plan sponsors in order to obtain the transaction-level data necessary to conduct the evaluation and to make a determination as to whether or not to self-report. Given that the data needs extend back to 2013 or earlier, this can be a time-consuming process for the plan sponsors. This adds another time component to the already shortened time frame to make the self-reporting determination, potentially leaving your firm very little time to conduct the actual data analysis.
  • Analyzing the Data Plan Sponsors may provide data back in disparate formats, including different fields, or failing to populate certain fields consistently within their data. Given how far back the request extends, they may have changed formats or their own providers during the period at issue. Compiling the data together into a single usable resource for review can create a strain for firms whose resources already have full-time responsibilities and may not be able to complete the analysis in the short time provided by FINRA. Whether an individual review or a statistics-based approach is adopted, you must review all transactions in some fashion.
  • Failure to Self-Report – Firms who do not self-report will potentially be subject to additional sanctions, whereas those who participate are likely to be required to make restitution payments only. In some instances, the penalties assessed in prior matters have amounted to as much as two thirds of the required restitution, so the possibility of additional sanctions should be a meaningful part of your firm's decision making on whether or not to self-report.

Further details and insight are provided in two recent Bates Group releases: Planning Your Response to FINRA’s 529 Initiative — Q&A with Bates Managing Director Alex Russell and “Bates Compliance and Regulatory Alert: FINRA Rolls Out Its 529 Plan Share Class Initiative - Is Your Firm Ready to Address It?"

Bates is ready to help you and your firm. Contact us with your 529 Share Class questions or for assistance in evaluating your firm's course of action when responding to FINRA’s initiative. Call (503) 670-7772 or email


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