Displaying items by tag: finra

In a blog post, Bill St. Louis, FINRA’s head of enforcement, said that more Reg BI cases are ‘in the pipeline’ and that ‘disciplinary actions have been increasing’. He added that these cases in the pipeline involve Form CSR, excessive trading, complex products, and variable annuities. 

Two recent enforcement actions involved the use of social media influencers for customer acquisition. FINRA fined Cobra Trading $200,000 for paying social media influencers with larger followings to promote the firm. According to the agency, these promotional posts made false claims and were not fair or balanced. Similarly, M1 Finance was fined $850,000 for social media posts made by influencers on the firm’s behalf that violated FINRA’s guidelines. 

Given that a growing share of the public now gets news and information about investments from social media, the agency is conducting regular sweeps. Firms are also required to conduct a consolidated audit trail. According to St. Louis, most firms are in compliance with these reporting obligations, but some audit cases are also in the pipeline. 

Finsum: FINRA is stepping up enforcement of Reg Bi. Two recent enforcement actions were due to firms improperly using social media for promotion.  

There are many reasons why an advisor might decide to switch their broker-dealer or custodian: better culture, a more supportive environment, or innovative solutions for their clients, to name a few. While these are valid reasons to consider a change, advisors who prepare for their clients’ questions will be thankful they took the time to do so if or when the time comes to move.

A helpful guide is the FINRA post “What to Ask When Your Registered Financial Professional Changes Firms,” published less than a year ago. It recommends questions an investor should ask their financial advisor who is moving firms.

At the top of the list are “Could financial incentives create a conflict of interest for your registered professional?” and “Can you transfer all your holdings?” These are understandable questions your clients might seek answers to, and having transparent and well-thought-out answers will go a long way to easing their concerns, if they have any.

If you are considering a move, check out this article and use it as a guide to prepare your communication with your clients.

Finsum: Considering switching firms as an advisor? Be ready for client questions with insights from FINRA's guide. Clear communication is key!

According to a FINRA enforcement executive at Sifma’s recent Compliance and Legal Conference, the regulatory body is planning to complete at least 1,000 Regulation Best Interest exams of broker-dealers by year's end.  While FINRA has been examining Reg BI violations since the rule went live, officials have exclusively reported violations in industry-wide notices such as the 2023 FINRA Report on Exam and Risk Monitoring Program, instead of seeking enforcement actions against firms or reps. However, according to FINRA officials, “a year and a half after Reg BI went live, the enforcement gloves are coming off.” Christopher Kelly, FINRA’s acting head of enforcement, said, “A number of the firms that have been warned still haven’t remedied the [violations] the examiners…warned them about, so those will often result in referrals to enforcement.” St. Louis added that FINRA is taking a hard look at variable annuities and has at least one Reg BI enforcement in the works dealing with conflicts surrounding the contracts.

Finsum:After a year and a half of warnings, the gloves are coming off for FINRA as they plan on examining just under one-third of FINRA’s 3,300 member firms for compliance with Reg BI.

FINRA recently announced that it has fined and censured a New York firm for violations of some of the basic written and supervisory requirements of Regulation Best Interest. The violations date back to June 2020 when the advice standards went into effect. The regulatory body charged the Long Island Financial Group, a five-person broker-dealer based in Roslyn, N.Y., with failure to supervise and “to establish, maintain, and enforce written policies and procedures reasonably designed to achieve compliance” with the regulation that requires advisors to put customers’ best interests ahead of their own financial gain. The firm settled the charges for a $35,000 fine, without admitting or denying guilt. The broker-dealer also received a public censure and is required to certify that it has remedied the compliance failures within 90 days. According to FINRA, Long Island Financial Group also “failed to establish and maintain a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with Reg BI.” In addition, the firm also failed to deliver to its clients Form CRS, the customer relationship summary that broker-dealer clients and prospects are supposed to receive, explaining the firm’s service offerings, products, fees, and conflicts of interest.

Finsum:A small NY firm was fined and censured by FINRA for failure to supervise, maintain, and enforce policies and procedures reasonably designed to achieve compliance with Reg BI.

(New York)

All the regulatory focus recently has been on the SEC and DOL, and understandably so. However, FINRA plays a big role in the lives of RIAs and BDs, and it looks poised to make a big move. FINRA is currently examining Reg BI and seeing if they believe it applies to the meme stock trading situation. In particular, FINRA is considering whether new regulations need to be put in place that govern self-directed trading which is not covered by Reg BI. FINRA says it is “committed to supporting the SEC staff’s review (announced in October 2020) of the increase in self-directed trading by retail investors that is not covered by Reg BI, and the effectiveness of existing regulatory requirements in protecting investors in those circumstances”.

FINSUM: This is still in the early stages so it is hard to tell the extent to which it may affect advisors, but it is certainly something to keep an eye on.