SEC BI Rule in flux-ish

Tribal Bonds Fraud
July 9, 2019
FINRA Cooperation Pays Off
July 24, 2019

Is the SEC’s Best Interest Rule still happening?

Yes, at this writing. However, this week, there are two different articles – one in InvestmentNews and the other in Bloomberg – telling two different stories.

According to Bloomberg’s Robert Schmidt, the ink is barely dry on new federal rules governing broker conflicts, yet the industry is moving quickly to quash even stricter regulations that are now popping up at the state level.

FINRA Releases New Guidance on Credit for Extraordinary Cooperation

WASHINGTON—FINRA today announced that it has released new guidance regarding credit for extraordinary cooperation in investigations. Regulatory Notice 19-23 supplements prior FINRA guidance, providing additional information about “extraordinary cooperation” respondents can provide to substantially assist FINRA in meeting its goals of investor protection and market integrity. To recognize and incentivize firms and individuals to take proactive and voluntary steps beyond those required under FINRA rules, FINRA Enforcement credits extraordinary cooperation so that the outcome of the matter is materially different than it would have been absent the respondent’s extraordinary conduct. The Notice also restates and supplements prior guidance.

FINRA has previously recognized extraordinary cooperation by respondents when making its enforcement determinations, and issued guidance in 2008 noting the types of extraordinary cooperation by a firm or individual that could result in credit. The types of extraordinary cooperation were categorized as follows: (1) self-reporting before regulators are aware of the issue; (2) extraordinary steps to correct deficient procedures and systems; (3) extraordinary remediation to customers; or (4) providing substantial assistance to FINRA’s investigation.

Subsequent changes to FINRA’s rules may have created uncertainty around the continued impact that self-reporting may have on a potential respondent’s ability to receive credit for extraordinary cooperation. In addition, other FINRA rules and policies—such as FINRA Rule 8210 and FINRA’s Sanction Guidelines—require certain levels of cooperation in every case. FINRA is issuing this Notice to provide further clarity on the differences between required cooperation and extraordinary efforts, and in response to comments from the industry requesting further transparency. As it has done in the past, FINRA will continue to look to the factors set forth in both the Sanction Guidelines and Regulatory Notice 08-70 when determining whether credit will be given for extraordinary cooperation. Those factors include, among others, the timeliness and quality of a potential respondent’s corrective measures and other cooperative steps aimed at broadly and quickly remediating harm.

When FINRA determines that credit should be given for extraordinary cooperation, that credit may take many forms. For example, where a problem has been fully remediated, FINRA may conclude that no enforcement action is warranted and close an investigation with no further action or with a Cautionary Action Letter. In other cases, FINRA might determine that an enforcement action is appropriate to remedy or prevent harm, but will provide credit by reducing the sanctions imposed. When credit is given in the form of a reduced fine, the reduction normally will be substantial; in appropriate cases, FINRA may also consider imposing formal discipline without any fine.

“In response to comments from member firms requesting further transparency, FINRA is issuing this Notice to provide additional information about what firms and individuals can do to earn credit for extraordinary cooperation, and what kinds of credit are available,” said Susan Schroeder, Executive Vice President, Department of Enforcement. “We grant credit for extraordinary cooperation to incentivize firms and associated persons to voluntarily and proactively assist FINRA. Respondents who go beyond their regulatory obligations and take extraordinary steps to quickly identify and remediate misconduct materially aid FINRA in meeting its objectives of investor protection and market integrity.”

What does all this regulation mean for RIAs/BDs and others?

Ongoing regulatory oversight and demand for compliance. More work for compliance professionals. And, likely, more public shaming of those caught compliant deficient. For more than 25 years, Patrina has been helping compliance professionals like you keep track of “bad apples,” and stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive 8-module compliance solution, and compliant data capture & file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.

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