SEC Enforcement Action 2008 thru 2016

Independent Compliance Consultants as a Remedy in Regulatory Cases

SEC Enforcement Action 2008 thru 2016Independent Consultants are frequently mandated as part of the remedy in securities enforcement actions. The SEC and SRO’s like FINRA and MSRB recognize the value of having an independent compliance consultant monitor or perform specific tasks related to a case and ensure corrective action is being applied appropriately. The tasks are generally outlined in the settlement agreement and can include a number of months or years a Broker-dealer or RIA may be required to retain services. In such cases, regulators describe the independent consultant as a; compliance consultant, disbursement consultant, or monitor depending on their prescribed use.

 For the most part regulators are relying more and more on the resources of consultants for obvious reasons.  Leveraging consultants reduces reliance on limited regulatory resources and frees up staff for new cases. Consultants are also able to handle tasks more efficiently where regulators are not designed to, such as cash disbursements or re-writing policies and procedures. Regulators may even request a detailed analysis of a firms’ compliance program by an outside consultant as requisite to completing remediation.

Respondents (defendants) in a regulatory case are naturally concerned about the cost of consultants, as the expense is out of pocket, but many firms agree independent consultants are generally less expensive and easier to work with than regulatory examiners. For this reason, often a BD or RIA will request review of their records prior to being fully investigated by Regulators. This allows the firm an opportunity to discover and remedy risks outside of the public eye, and may hopefully improve a firms’ chance of satisfying a regulator earlier and for less of an expense.

If a Regulator requires an independent consultant as part of a settlement, respondents should take care to have the terms and work to be performed by the consultant clearly defined. An overly broad mandate by a Regulator can have a serious consequence on an unsuspecting firm. Given the consultant is independent, they are barred from exhibiting a conflict of interest between the firm and regulator, and are often given leverage to pursue whatever remedy deemed appropriate in absence of clear instructions. With that in mind, the use of a third party consultant can be a very positive remedy to improving the relationship between firms and regulators. Often regulators value the expertise of consultants and their ability to monitor a firm after a regulatory issue has been discovered.

 Firms which are proactive about a regulatory inquiry leading to enforcement may be able to bypass the request for an independent consultant by taking steps on their own to remedy risks before a formal resolution is handed over. Early efforts by respondents demonstrate to a Regulator that the firm understands the depth of the problem and takes remediation seriously. Some steps a firm may take include; investigating and reporting problems whether they’ve been identified by the Regulator or not, and demonstrating remediation by making a voluntary restitution or adopting new policies to prevent future occurrences.   These steps can also provide a basis for reduced fines, sanctions, or suspensions.

Firms faced with a regulatory inquiry should understand that Regulators can impose “any equitable relief deemed appropriate or necessary”. This may include; providing restitution to persons harmed, revising procedures, ceasing certain business activities, and more. Requiring the resources of an independent consultant is frequently considered an appropriate course of action to ensure a complete remedy. Thus, while independent consultants are not explicitly authorized by regulators at this time under specific licensing, they are a frequent sought for their expertise and ability to develop sensible solutions in remedy enforcement cases.


Is there a regulatory inquiry or issue you are concerned about?  Our staff has helped numerous firms subject to inquiry and examination.  We’ve assisted law offices across the US working with Broker-dealer, RIA clients, and other financial service businesses. Our services include providing expert testimony, analysis of records and remediation; as well as outsourced compliance and principal support on an interim or month-to-month basis. We’re happy to work directly with financial service firms, their attorneys, CPAs, investors, shareholders, and liaison with Regulators. Visit our services menu for more information.

Reach out to us for a confidential discussion of your business and we’ll see what we can do to help. If we’re unable to assist, we’ll try to find a suitable resource for you.

Dave Banerjee CPA

Dave Banerjee CPA – Elected to FINRA District 2

Thank you for your support in electing Dave for FINRA District Committee

Dave Banerjee CPADave Banerjee 2017-2019 FINRA District 2 committee member

Personal statement from Dave 

” I am truly honored to have been elected to the FINRA district 2 committee small firm seat that opens January 2017. My focus is to ease the regulatory oversight crisis faced by FINRA small firm members. I welcome discussion with fellow member firms in achieving this objective and hearing other industry concerns as well.” 

In coming weeks Dave will be participating in various orientation calls and discussion with committee member colleagues. He welcomes discussion with D2 members. 

As a compliance and regulatory principal to small and mid-sized firms since 1984, Dave has experienced the rise and fall of various financial crisis. Presently the burden on small to mid-size broker-dealer firms by regulatory authorities is in crisis. There is a steady decline of applications for new member broker-dealer firms,and withdrawals have increased. Ever-changing regulatory rules and overwhelming recordkeeping requirements placed on smaller brokers is taking a toll. 

More recently, the rise of FinTech, Robo-advisors, and Regtech firms pose new threats to traditional BD’s, and bring formerly unheard of risks. Dave’s knowledge in Engineering, Technology, and Compliance gives him a unique advantage to understanding emerging technology and its impact on the industry and firms. Dave has the ability to develop solutions for small firms and understands the value of emerging technology.

Dave welcomes an opportunity to hear your concerns directly and work with member firms in developing strategy to tackle the high pressure points. Being elected to the District Committee is an opportunity to participate in regulatory initiatives and carry the message of small firms.  Feel free to share your insight, thoughts, and concerns using LinkedIn, Skype, Email, or Phone. 


FINRA Exam & Audit Group

We’ve created a LinkedIn group where District 2 members and compliance colleagues can share issues and concerns about FINRA oversight and challenges or concerns about FINRA exams. Join the group and start a conversation with Dave through LinkedIn

Background and Qualifications: Dave Banerjee, CPA

  • Dave Banerjee, CPA has been a member of FINRA since 1984
  • Representative and principal registrations; 4, 7, 24, 27, 53, 55, 63, 65, 79, and 99  
  • CEO of RND Resources, Inc compliance firm
  • Member PCAOB and AICPA and licensed CPA
  • Compliance solution provider handling risk assessments, audit, member applications, and consulting to small and mid-sized firms
Expert knowledge of the regulatory process and hands-on experience with small firm challenges along with a background in Engineering, Technology, and Compliance.
Cyber-security action steps

How to Draft the Cybersecurity IRP – Incident Response Plan – for BDs and RIAs

Cyber-security action stepsThe Cybersecurity Incident Response Plan becomes part of the Cybersecurity policy and outlines steps the firm will take when a risk or threat is discovered. All fund managers, investment firms, and securities brokerages are expected to have this policy in place, as it outlines what the firm is doing to minimize the risk of threats, and how it intends to administer response in the event of a breach. Firms are also expected to fully track and document their response steps, and fully disclose damage done, costs, and recovery procedures.

In order to develop a strong Cybersecurity IRP, an assessment of existing capabilities and threats is needed. SEC’s Office of Compliance Inspections and Examinations (OCIE) tells us what they expect in a sound plan.

OCIE Examiners will focus on and scrutinize areas of; governance and risk assessment, access rights and controls, data loss prevention, vendor and third party management, and incident response. Specifically, examiners will review whether established policies, assigned roles, system assessments, and plans to address events are sound. Examiners are keenly concerned about risk and handling of Personally Identifiable Information (PII).

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BlockChain Distributed Ledger System

Clearing with Blockchain Technology

For some the introduction of blockchain technology is as cutting edge as the internet itself, others see it as the natural progression of things. Regardless of your opinion, blockchain technology is progressing at a rapid pace and changes the way financial firms and other businesses think about doing business, similar to the way drone technology has changed policing.  BlockChain Distributed Ledger System

What is Blockchain Technology and how will it change the way Banks and Clearing houses do business?

Millennials are shocked to hear that at one time trades were booked by writing up tickets and placing them in basket to be processed at the end of the day (hopefully). Since then the computer has helped speed up the pace and transactions can be processed throughout the day. But many trades still take up to 3 days to clear. ACH technology (over 40 years old) can still take 2-4 days to post transactions.

Customers wanting quicker solutions, gave entrepreneurs cause to develop transaction systems that speed processing through banking and intermediary cross checks. Blockchains are a near perfect fit because they’re based on a system where accuracy checking and verifying are no longer necessary.

Definition of a Blockchain –

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Support for Private Placement Firms

Real Fear of SEC Action for Private Equity Firms

A 12 month analysis of FINRA NMA’s (New member Applications) from July 2016 shows 55% of new BD firms admitted identify as private placement only, while nearly the same number of PP only firms withdrew.

Many in this fast growing cross-section of BD formations are running for cover under rabid disruption by the SEC. The controversy is over SEC’s Blackstreet Capital Management decision June 2016 that left private equity dealers trying to determine how to align with FINRA; should they get in, stay in, or get out.  

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Expungement Rule 2080

Removing Disputed Claims from FINRA Brokercheck under Expungement Rule 2080

Since the June 2016 hyperlink rule, FINRA brokercheck has an expanded role for client / investors who wish to find out about their advisors record with other clients and member firms.

Expungement Rule 2080Its anticipated that investors will use this tool more and more going forward to search advisor information as well as firm history and its officers. While, the hyperlink rule didn’t change information available on FINRA Brokercheck; it does drive more traffic to brokercheck and create greater awareness of the tool.  The byproduct of which is; informed investors that know little about facts of a case which may have been a frivolous claim or a dropped dispute.

Not to discount legitimate claims against advisors who’ve made grievous mistakes or falsified records. Expungement under Rule 2080 is only available where factual basis exists. Still many advisors who would qualify for expunging a claim do not pursue it. Bottom line investor disputes and claims hurt an advisors relationship with their employer and their clients, and can ruin chances of transitioning to another firm.


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SEC RIA Admissions

Why Starting an RIA should not be a One-size-fits-all Decision (Part 1)

As compliance consultants, we’ve worked with a number of start-up RIA’s over the years and can say it is not a one-size-fits-all business venture.

There are a number of considerations investment advisors should address as part of the planning process which save time, conflicts, and expense later on.

SEC RIA Admissions

SEC RIA Admissions 2013-2015

An important step in starting a new RIA is to make a solid analysis of goals. When considering goals a thorough research of the business model, tax planning, custodian relationships, state rules, and more will impact the cost to establish the RIA and decisions down the line. For many investment advisors wanting to start their own RIA the effort involved in dissecting various aspects of formation is beyond their expertise.

To balance out the complexity in setting up a new firm, some RIA principals will start with a simple low cost template based solution and assume they will modify it later once they build up capacity. From what we’ve seen, this can create a number of even more complex problems that are not easy to upgrade or change once the firm is already doing business. As an experienced consultant to new RIA firms starting out, we caution against making decisions without fully understanding their impact.   Read more

High Frequency Trade Board

Series 57 Registration Requirement Expanded for Algorithmic Trade Firms

Firms engaged in algorithmic trading strategies may wish to have their Chief Compliance Officer register as a Securities Trader or Securities Trader Principal.

June 2016 the SEC approved an amendment expanding the scope of persons required to register as “Securities Trader” as it pertains to firms engaged in Algorithmic Trading Strategy.   Rule amendment 16-21 applies to persons who supervise day-to-day activities or who are primarily responsible for design, development, or significant modification to algorithm systems. The rule is intended to ensure persons associated with these functions possess knowledge or and responsibility for the design and the intended trading strategy, as well as technological implementation. This registration requirement is expected to ensure system changes are designed with regulatory compliance in mind as well as business objectives.  

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DOL Fiduciary Rule Changes

DOL Rule Action Plan for BDs & RIAs

Broker-Dealers and Registered Investment Advisor firms are concerned about the new DOL Fiduciary Rule change, leaving many firms uncertain where to begin and when to start.

As any experienced compliance officer can tell you, planning ahead will be key in making a smooth transition to the new standard.  We firmly suggest planning ahead by preparing your staff and stakeholders as well as third party service providers.  Client accounts will need to be analyzed to determine how they will be impacted by the change, if at all. New marketing materials and disclosure forms will need to be developed. Suffice it to say, it is a lot of work. 

RND Resources is here to assist you all the way. Read our action plan for tips and ideas on how to handle important steps in making the transition to DOL Fiduciary standards. Read more

Download the DOL Fiduciary Rule guide

2016 DOL Fiduciary Rule Confusion

2016 DOL Fiduciary Rule change sparks lawsuits and confusion among industry firms and advisors

Download the DOL Fiduciary Rule guide

Guide to 2016 Fiduciary Rule

Since the adoption of the Fiduciary rule change in April 2016, BDs and RIAs are scrambling to understand how it will affect them, what to change, how to implement it, and whether or not the stemming lawsuits will prevail. Many compliance officers are confused by the new standard taking place and even further concerned about making changes that will later be reversed if the rule itself is reversed.

Firms cannot count on the flurry of lawsuits to stop this bit of legislation. However they may result in a few changes or further clarifying language. 

What are the Fiduciary rule lawsuits all about?

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