The rise in regulatory fines

How FINRA compliance consultants ease enforcement action outcome

Regulator examiners are focused on deterring fraud and uncovering supervisory failures, but aren’t expected to draft tailored compliance programs and procedures for a firm. Firms that need this type of assistance reach out to qualified FINRA compliance consultants for guidance. Additionally, FINRA experts are often called upon by either firms or regulators to supervise remediation efforts and monitor on-going compliance activities.

Benefit of hiring a FINRA consultant to assist in remediation

FINRA compliance consultants improve enforcementOne of the benefits of on-boarding a compliance consultant to resolve a violation is having them communicate directly with the regulatory examiner. A consultant with appropriate credentials, such as a General Securities Principal Series 24, can directly communicate procedural changes to enforcement examiners while providing an added sense of relief to the firm’s managing members and confidence for the regulator. Additionally, if new business practices are recommended, the business owner may benefit from better devised solutions through an expert in compliance, rather than an examiner who’s focus is limited to regulation and not hands-on compliance supervision.

Regulators realize they get a benefit from member firms who employ FINRA or SEC consultants in resolving their remediation concerns and value the partnership. Regulation consultants have expertise that extends beyond resources of regulators, which increases examiner confidence. Use of a compliance expert often demonstrates to regulators that the firm takes the violation seriously and is committed to improving. Most firms find, outsourcing to a compliance firm outweighs the cost by getting matters settled sooner and with less frustration. Managing partners also benefit by eliminating uncertainty in interaction with the examiner, so they can focus on assuring clients and helping the business recover from negative press or otherwise.

In some instances, a regulator will require a compliance expert for remediation and on-going monitoring. Settlement may include reviewing transactions, determining whether responsibility lies upon officers or employees, and uncovering additional victims.  Delegating this responsibility onto the compliance consultant does not come lightly. Regulators will seek complete independence between the parties. Restrictions of working together in the past and/or future will be part of the agreement; to ensure conflicts of interest are eliminated.

It’s possible the compliance firm may be asked to enforce the necessary settlement reparations. They may take on the responsibility to calculate and release agreed disbursements for the firm. This gives the regulator confidence the settlement shall be paid under the terms of the enforcement agreement. In such cases, the compliance firm is generally required to submit a report to the regulator showing proof of activities on a scheduled basis. By assigning these tasks to a compliance consultant the regulator can move on to other cases needing attention without the work of verifying receipts or calculating damages. When a mandated restitution is expected to be resolved over several months or a few years, outsourcing to a consultant can significantly shift the burden away from examiners and make life for the firm easier as well.

In some cases, regulators run a risk by mandating support from a outsourced compliance expert. Compliance consultants look at policy and procedure compliance from a perspective that differs from the view of examiners. Occasionally a compliance professional will interpret the degree of egregiousness different than the examiner. The compliance professional may assert the examiner was too strict in applying the rule, or even too broad. These types of discrepancies may delay resolution of an enforcement case until resolved. Therefore, it is important to work with a compliance consulting firm with strong experience in enforcement matters that knows how to demonstrate their own assessment clearly to regulators if necessary.  A seasoned compliance professional may even be able to draw a conclusion that sanctions imposed by the regulator are disproportionate to the level of misconduct. In this type of situation, it is important to have a solid team of compliance professionals advising your firm before coming to a resolution agreement.

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Does your FINRA, MSRB, or SEC member firm need assistance navigating remediation for an enforcement action or exam? Our professionals are highly experienced with regulatory rules. We develop policy and procedure manuals for Broker-Dealers, RIAs, Municipal Brokers, Private fund managers, and more. Our expertise is vertically integrated compliance solutions for firms; bringing business planning, operations, trading, and registration. RND professionals provide –

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SEC No-Action letter provides relief to Introducing Broker-Dealers

SEC “No-Action” letter to NYLIFE provides relief to Introducing Broker-Dealers

Welcome news for Introducing Broker-Dealers. The SEC issued a “no-action” letter to NYLIFE in which the SEC recognizes difficulties of “Introducing Brokers” in meeting the next-day-by-noon compliance requirement of Rule 15c3-3 (k). SEC

NYLIFE reached out to the SEC asking for interpretation of Rule 15c3-3 which requires “Introducing Brokers” promptly transmit customer funds and securities to whom they are owed by noon the next business day. The “clock” starts when any associated person of a broker-dealers field office receives the funds or securities.

Many broker-dealers struggle to comply with the noon-by-next-day requirement. And, with an increasing host of other regulatory requirements, compliance with 15c3-3(k) has become nearly impossible.  The SEC letter to NYLIFE indicates “no-action relief” for broker-dealers holding customers checks to complete principal suitability reviews of the sale and as long as they have;


  1. Established reasonable policies and procedures to ensure funds are safeguarded and that a registered member promptly prepares and forwards a complete and correct application package.
  2. A Registered principal performs a suitability review in accordance with FINRA 2111 and determines approval of each recommended subscription-way sale within 7 days after the OSJ member receives the application package.
  3. The check is transmitted no later than noon of the business day following the date the registered principal reviews and determines if the transaction is approved.
  4. The Broker-Dealer maintains a copy of each check and keeps a record of when the check was received and the date it was forwarded to the issuer, or returned if rejected.
  5. The Broker-Dealer discloses the process of handling checks payable to issuers of subscription-way securities to the customer in advance.

When is it effective: The SEC letter is dated March 12, 2015 and indicates the SEC would not recommend enforcement action by the SEC if “NYLIFE” or any other broker-dealer in similar circumstances holds customers checks payable to issuers, if the purpose for holding the checks is to complete principal suitability reviews.

Read the SEC Letter


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White Paper:Exemption from Registering with the SEC as a Broker Dealer

On January 31, 2014, the SEC’s Division of Trading and Markets issued a “no action” letter, in which the Division will not recommend enforcement if a M&A broker were to effect securities transactions in connection with the transfer of ownership of a privately held company under certain conditions.

History:  There is no nationally recognized license specifically for merger and acquisition (“M&A”) or business broker services. Accordingly, most practitioners have relied upon state real estate broker licenses for their transaction activities. Most states require a realty license to sell a business property, and some states stipulate that a broker must hold a realty license to sell a business. Therefore, over time, the real estate broker license became the defacto license for this niche service.  However due to the vagaries of different state laws, M&B brokers operating a transaction that cross state lines were subject to various state based requirements. In California, a broker dealer registration is not required (Rule 260.204.5) in connection with mergers, consolidations or purchase of corporate assets, and who does not receive, transmit, or hold for customers any funds or securities in connection with such transactions.


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