2015 ANNUAL COMPLIANCE MEETING

Transcription

1 2015 ANNUAL COMPLIANCE MEETING

2 FINRA Background Checks

3 FINRA Background Checks FINRA Rule 3110(e) requires that each member firm ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the firm applies to register that applicant. Firms are required to complete the investigation process prior to filing the Form U4. Background Checks

4 Background Checks Cont. In addition, Rule 3110(e) required that a firm s verification process must, at a minimum, provide for a national search of reasonably available public records. Public records include, but are not limited to: Name and address of individuals Criminal records Bankruptcy records Civil litigations and judgments, liens and business records Background Checks

5 Outside Business Activity Outside Business Activity

6 Outside Business Activities FINRA Rule 3270 No registered person may be an employee, independent contractor, sole proprietor, officer, director or partner of another person, or be compensated, or have the reasonable expectation of compensation, from any other person as a result of any business activity outside the scope of the relationship with his or her member firm, unless he or she has provided prior written notice to the member, in such form as specified by the member. Outside Business Activity

7 Activities Not Considered Outside Business Activities Unpaid charitable or volunteer work Homeowners Association board position Passive investments in limited partnerships Personal real estate investments Little league coach Outside Business Activity

8 Activities That Would Be Considered Outside Business Activity Paid Board of Directors Position Part time employment Any sort of management or control person in a limited partnership regardless of whether or not compensation is received Any sort of paid consulting work Outside insurance or registered investment advisory work This may also be considered Private Securities Transactions or Selling Away Outside Business Activity

9 Prior To Engaging in OBA These Steps Must Be Taken Registered representatives must request approval from the Compliance Department PRIOR to engaging in outside business activity The broker dealer must conduct a 3270 analysis that considers the following: Evaluate whether or not the outside business conflicts with the business of the broker dealer and its clients Ensure that the outside business is not securities related which would be considered Selling Away Determine if any supplementary supervisory procedures would be required to monitor the outside employment Send the registered representative a letter approving or denying the request for outside employment Ensure that the outside employment is disclosed on the registered representative s Form U4 Outside Business Activity

10 Material Changes In Outside Employment It is the registered representative s responsibility to inform the Compliance Department any time there is a material change in outside employment. These changes include: Number of hours per week the registered representative spends working with the outside employer Any change in title or responsibilities A change in the outside employment location Changes in how the registered representative is compensated (ex. Hourly to salary or commission) The termination of an outside employment These changes may result in changes to the RR s Form U4 and the broker dealer s policies and procedures for supervising the outside employment Outside Business Activity

11 Outside Brokerage Accounts

12 Outside Brokerage Accounts It is the broker dealer s responsibility to monitor and review the personal trading activity of its Associated Personnel. In order to accomplish this task, the firm is required to be notified of all Covered Accounts and may make a request to the custodian broker dealer for copies of trade statements and/or trade confirmations. Prior Written Notice Required Outside Brokerage Account

13 Covered Accounts Accounts covered under this rule include any account that holds any security, mutual fund, or variable annuity that are: In the name of an Associated Person of the firm Owned jointly by an Associated Person with another individual Any account where an Associated Person has power of attorney Accounts where an Associated Person is the guardian of a minor Accounts of outside institutions where the Associated Person makes the investment decisions Outside Brokerage Account

14 Registered Representative s Compliance Obligations Registered representatives are required to disclose to the broker dealer in writing any and all outside brokerage accounts at the date of employment and PRIOR to opening any new account Additionally, the broker dealer will ask registered representatives to confirm all outside brokerage accounts at the Annual Compliance Meeting each year Outside Brokerage Account

15 The Broker Dealer s Compliance Obligations Once the broker dealer has been made aware that a registered representative has an outside brokerage account or would like to open a new one, the Compliance Department will conduct a review of the account to determine if it will require copies of statements and/or trade confirmations If copies of statements and/or are required, then the Compliance Department will call the custodian broker dealer and make a request for duplicate copies to be mailed to the broker dealer Outside Brokerage Account

16 Insider Trading

17 Insider Trading Regulated by the 34 Act As defined by the SEC: Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include tipping such information, securities trading by the person tipped, and securities trading by those who misappropriate such information. Insider Trading

18 Potential Sanctions For Engaging In Insider Trading Civil penalties may be imposed for three times the profit gained or loss avoided and not more than $1,000,000 for controlling persons Criminal penalties include a maximum fine of $5,000,000 for individuals and up to $25,000,000 for non-natural persons and a maximum jail sentence of 20 years Insider Trading

19 Who Is To Blame? Under the insider trading rules, all persons who are involved in the process of obtaining and using insider information may all be held equally liable regardless of whether or not they personally benefitted from the use of the information This would include: Persons who directly profited or received any sort of benefit from the direct use of material non-public information. Persons who passed material insider information on to a third party who used it for their own gain Any person who willfully turned a blind eye to a person or institution whose is engaged in insider trading. Insider Trading

20 Disclosures on U-4

21 Disclosures on U-4 Criminal History; Regulatory Actions; Civil Judicial Proceedings; Customer Complaints; Arbitrations; Employment Terminations; Bankruptcy Judgments and Liens; Compromise with Creditors and Short Sales; Branch Office, Residential and Employment History; and Any Outside Business Activity Example: Broker Fined and Suspended for non-disclosing on U4 - Tax Lien, Credit and License Disclosures Disclosures on U-4

22 Social Media and Electronic Communication

23 Social Media FINRA Rule 2210(c)(6) FINRA and Spot-Check of Social Media Communications Explanation of how firm(s): is currently using social media at the corporate level RR s and AP s generally use social media has adopted to monitor compliance with the firm s social media policies (e.g., training meetings, annual certification, technology) Portion of firm s WSP concerning the production, approval and distribution of social media communications Tabular list of firm s top 20 producing RR s (based on commissioned sales) who used social media for business purposes to interact with retail investors With respect to the firm: The URL for each of the social media sites, the date the firm began utilizing each site and the identity of all individuals who post and/or update content of the sites Explanation how firm is currently using social media at the corporate level Social Media & Electronic Communication

24 Electronic Communication FINRA and the SEC are particularly sensitive to how registered representatives and the broker dealer uses, archives and monitors electronic communication Social Media & Electronic Communication

25 Electronic Communication Defined Any electronic or digital correspondence or communication with a customer, potential customer, any employee of the broker dealer or any other third party that is business or securities related Social Media & Electronic Communication

26 Electronic Communication Includes: Text Messages Instant Messages Twitter Posts (#compliance) Linked In Messages Chat Rooms Bulletin Boards Social Media & Electronic Communication

27 Broker Dealer s Compliance Obligations Establish and enforce adequate policies and procedures regarding electronic communication Retain copies of all electronic correspondence through the broker dealer s domain Obtain copies of all other forms of business related electronic correspondence regardless of the medium or platform from which they are sent or received Conduct a thorough review of electronic communications Ensure that there is adequate documentation of all electronic communication reviews Social Media & Electronic Communication

28 Registered Representatives Compliance Obligations All registered representatives are prohibited from using unauthorized accounts or other unauthorized means of electronic communications to: Solicit potential clients Communicate with existing clients on business related matters Communicate with fellow employees or colleagues on business related matters Should a registered representative receive an from a client or potential client through a personal account, Facebook message, Linked In message or any other unauthorized communications platform, the registered representative should: Respond to the sender and copy an authorized broker dealer account with a statement that going forward only a broker dealer authorized account may be used for electronic communication Social Media & Electronic Communication

29 Anti-Money Laundering (AML)

30 Anti-Money Laundering (AML) A set of procedures, laws or regulations designed to stop the practice of generating income through illegal actions. Anti-Money Laundering

31 NEWS Continuing Education (CE) Effective October 1, 2015, reps now have two options for satisfying their CE requirements: online via the CE Online Program or at a testing center CE Online Program Available programs: S106, S201, S901 (starting January 4, 2016 S101) Cost: $55 Time restrictions: start and stop a session at any time during the 120-calendar days of starting a session Operating hours: 24/7 Areas of Focus in 2015 for FINRA Cycle Exams Sales practice Interest rate-sensitive fixed income securities, variable annuities, alternative mutual funds, REITs Supervision rules FINRA Rules 3110, 3120, 3150 and 3170 became effective on December 1, FINRA will be checking to see if Firm s have updated their policies and procedures Private Placements, Senior Investors, Anti-Money Laundering (AML), Municipal Advisors and Securities, Cybersecurity and outsourcing News

32 Conclusion

33 Remember The Compliance Department Is Watching! Registered representatives must ALWAYS remember that their , instant messages, and other authorized electronic communications are being reviewed and monitored by the Compliance Department. That joke you forwarded, that comment about a fellow employee or your boss, that note you sent to your significant other is not only read by the Compliance Department but also may be read by the FINRA examiners during a routine audit. Remember Keep it clean Keep it professional Keep out of trouble Conclusion