SEC and FINRA 2015 Exam Priorities

SEC and FINRA have recently announced the priorities for their 2015 examination programs.  The priorities are divided into 4 categories:  a) retail investors; b) market wide risks; c) data analytics; and d) other areas.

Retail investors: In consideration of recent industry trends, including the fact that registrants are developing and offering to retail investors a variety of new retirement products and services, the program will focus on 4 key areas that tend to center on retirement accounts:

  • Fee arrangements:  The program will focus on recommendations regarding account types and if they are in the best interest of clients, including the fees charged and the risks.
  • Sales practices:  The focus will be on the sales approach used regarding the movement of retirement assets from employer plans to individual accounts, including the fees charged and the risks.
  • Suitability: The staff will focus on recommendations and determinations to invest retirement assets into complex or structured products and higher yield securities including due diligence conducted, disclosures made and the suitability of recommendations.
  • Branch offices: In this area the staff will focus on supervision issues and use its analytics to assess deviations from compliance practices.

Market-wide risks: Focus will be on structural risks and trends that can impact multiple firms or an entire industry. Areas of focus include:

  • Large firms: In conjunction with Trading and Markets the program will focus on the largest broker-dealers and asset managers to assess risk at individual firms and across industries.
  • Clearing agencies: All agencies assessed as systemically important will be examined using a risk based approach.
  • Cybersecurity: Building on an initiative started last year, the program will focus on compliance and controls.


  • Execution: The program will focus on potential conflicts involving payments or credits for order-flow and the duty of best execution.

Data analytics: Enhanced analytics will be used to assess the potential to engage in fraudulent and/or other potentially illegal activity including:

  • Recidivists: This involves the identifications of those with a record of misconduct.
  • Microcap fraud: Identification of brokers and transfer agents that may be involved with microcap fraud such as market manipulations. Enforcement also has a microcap fraud task force which focuses on these areas.
  • Excessive trading: The focus here is on clearing and introducing brokers to identify excessive trading. This complements the retail issues listed above.
  • AML: This will focus on clearing and introducing brokers that have not filed SARs or have filed reports which are incomplete and brokers who permit deposits of cash or direct access to the markets.

Other areas: Other priorities for the Division include municipal advisers, proxy services, never before examined investment companies, fees and expenses in private equity and transfer agents.

FINRA: Will focus on the sale and supervision of interest rate sensitive and complex products, transactions centered on wealth events for investors and cybersecurity, including platforms that interact with the markets. In addition, FINRA identified the following five broad areas of focus:

  • The alignment of firm and customer interests;
  • Standards of ethical behavior;
  • The development of strong management and supervisory systems;
  • The development and marketing of novel products and services; and
  • The management of conflicts of interest.

For further information please feel free to contact our office at  (818) 657-0288.

The Upcoming SEC and FINRA Cybersecurity Sweeps. Is Your Firm Ready?

Because of all of the sensitive financial information that RIA’s, Broker Dealers and Banks keep regarding their clients, internet security has become a major concern for the wealth management industry. As, hacking techniques are growing more sophisticated, it is hard to tell who could be observing your connection and Internet activity. Due to this cyber-threat the SEC and FINRA will be conducting cybersecurity sweeps of the wealth management industry to make sure you are up to date and taking the latest precautions to protect your clients.

Why Hackers Target RIAs and Financial Firms

Bank account numbers and social security numbers are not the only thing hackers are looking to steal. Many hackers and rogue traders are hijacking trading accounts from financial firms and making unauthorized trades, as well as stealing funds.

How the SEC and FINRA Cybersecurity Sweeps Will Work

The SEC and FINRA are aware of these potential security threats and want the industry to get prepared. They have announced that this year they are planning random sweeps to test the defenses of various firms. If a firm’s cybersecurity is not up to the job, the SEC and FINRA could levy large fines as punishment for the oversight.

The SEC and FINRA will also be checking to see that firms have adequate written policies and measures for cybersecurity, a schedule of periodic tests for weaknesses in the system, and a history of fixing weaknesses in their cybersecurity. If your firm fails in any of these categories, you could be liable for a large fine.

What Your Firm Needs to Do to Prepare

The SEC and FINRA cybersecurity requirements are fairly exhaustive and could catch many firms off guard, especially smaller firms that might not have full-time tech support. If you are worried that you may have a security gap, you could try working with a third party that specializes in this type of compliance. These firms have studied the upcoming requirements and can you give a checklist of the measure you need in place in case of a sweep.

We encourage you to join our free webinar, entitled “Cybersecurity for Financial Services Firms” on July 9th where we will be discussing the procedures you need to get ready. Preparing for the SEC and FINRA cybersecurity sweeps will take some work, but it’s a fraction of the headache of dealing with a serious breach.

Reserve your Webinar seat now at:


Beware of Bitcoin? Regulators Issue Warnings for Investors

Bitcoin is one of the hottest investment stories right now. Over the past few years, this new type of digital currency has exploded in value and caught the attention of investors across the World. However, the excitement behind Bitcoin’s gains might also be masking some serious issues. The SEC and FINRA have both released fairly strong warnings for people considering buying Bitcoins.    Read more

SEC Commissioner Fiercely Criticizes Investment Advisers. Are Big Changes Coming?

The investment industry has been steadily rebuilding its image in the aftermath of the financial crisis and the Bernie Madoff scandal. However, things are not getting fixed quickly enough for David Gallagher, the Commissioner of the SEC. Gallagher still sees major issues with how regulators deal with problem investment advisers and believes this hurts the entire financial industry.    Read more

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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