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Compliance
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Social Media Compliance Imbroglio At Netflix Illustrates Risk Securities Firms And Professionals Face From Unregulated Use Of Twitter, Facebook, And LinkedIn |
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Thursday, December 13, 2012 14:43
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Tags: broker-dealers | client communications | compliance | FINRA | investment advisors | RIA compliance | Social Media Thanks to a seemingly innocuous Facebook posting by its Chief Executive Officer, Netflix is facing the prospect of the Securities and Exchange Commission bringing a civil action against the company and the CEO.
In July, the CEO cheerfully revealed to 200,000 Facebook followers that Netflix subscribers had watched a billion hours of online videos the previous month. Despite the seemingly trivial nature of this posting, the SEC has issued a Wells Notice to Netflix and its CEO, indicating that the agency is contemplating civil action for possible violations of Reg FD about disclosures public companies make to invetsors.
While some say the SEC is overreaching, the incident is a stark reminder that Broker-Dealers and Registered Investment Advisors can face regulatory problems if associated persons misuse social media in connection with their jobs, and that registered representatives as well as IA reps need to know the current state of the law in this area.
This Website Is For Financial Professionals Only
FINRA Regulatory Notices 10-06 and 11-39 (the “Notices”) offer guidance regarding associated persons’ use of electronic means to communicate with the public. Such communications are generally subject to the same rules that apply to in-person or written communications, and may constitute “correspondence” (e.g., e-mail), a “public appearance” (e.g., LinkedIn or Facebook), an “advertisement” (e.g., Twitter) or “sales literature” (e.g., Facebook discussions).
Among other things, the Notices outline firms’ requirements for recordkeeping, which apply to all communications, and oversight, which differ depending on whether the communication is “static” (e.g., blog postings), or “interactive” (e.g., chat rooms). Static content, like profile and wall information, are considered “advertisements,” that require prior approval by a registered principal. On the other hand, interactive content involving real-time communications does not require such approval. FINRA places the onus squarely on Member Firms to determine into which category employees’ electronic postings fit, and to establish written supervisory procedures and systems to assist them in these determinations.
While social media sites like Facebook, LinkedIn, and Twitter hold great potential for marketing financial services, FINRA constraints mean such sites pose some regulatory risk.
Supervision is key, and firms’ legal and compliance departments need to stay current with both changes in technology and the law. Securities firms examine their social media policies, oversight and training, and implement protocols for prepublication review of social media postings by all personnel.
As we have learned, even seemingly innocuous posts on Facebook can trigger unintentional regulatory scrutiny that cause needless distraction from running your business.
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Implementation Of Proposed Private Issuer Advertising Rule May Result In Litigation For SEC In 2013 |
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Tuesday, December 11, 2012 13:24
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Tags: Dodd-Frank | hedge funds | sec
The Jumpstart Our Business Startups (JOBS) Act is part of the Dodd-Frank Act, for which the SEC is responsible for implementing. Part of the JOBS Act involves the SEC push to allow issuers of private securities to advertise to the public.
The turmoil at the SEC that has been a hallmark of 2012 may spill over into the New Year; implementation of the advertising rule may also result in litigation against the SEC. This Website Is For Financial Professionals Only
The most volatile issue at the SEC of late is the proposal to allow issuers of private securities like hedge funds to advertise to the public and solicit accredited investors directly.
The Wall Street Journal (WSJ) reported that imminently departing SEC chair Mary Schapiro delayed implementing the rule because she was concerned about her legacy.
A WSJ editorial last week purported Schapiro was following the edicts of Barbara Roper, head of investor protection at the Consumer Federation.
Roper fired back that those implications were absurd. And Schapiro has been urged by Rep. Patrick McHenry (R-NC) to act on the measure before she leaves this Friday, December 14th.
It’s largely agreed that rules covering private placements are in need of an overhaul. But as soon as they get one, consumer groups may file suit.
One such group, Fund Democracy, alleged in a letter that the SEC makes a mockery of cost-benefit analysis, which has been the sticking point often used to stop rule making perceived to benefit the industry over consumers.
This indicates the upheaval at the SEC may continue after Schapiro leaves, a not-so-welcoming gift for successor Elisse Walter. |
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Appointment Of Elisse Walter As SEC Chair-Designate Makes FINRA More Likely To Be Named Self-Regulatory Organization Overseeing RIAs |
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Tuesday, November 27, 2012 22:09
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Tags: compliance | FINRA | regulation | RIA compliance | RIA Registration President Barack Obama on Monday did not name Elisse Walter chairman-designate of the SEC becauseshe prefers RIAs be inspected and overseen by a self-regulatory organization.
Regulation of RIAs was probably not at the top of the list of positions considered by President Obama in deciding to appoint Walter as the new SEC chair. It’s safe to say that Walter’s position on regulation of money funds, disclosures by municipal bonds, and the Volcker Rule banning proprietary trading by banks were probably weighed more heavily by the administration.
However, Walter’s appointment is nonetheless a significant victory for those who support naming FINRA as the self-regulatory organization of RIAs. This Website Is For Financial Professionals Only
“I believe that the SRO model has, in fact, benefitted regulation of the securities industry for more than seven decades,” Walter wrote in a public statement made in her role as an SEC commissioner two years ago.
That quote is one of many quotable nuggets released by Walter in a seething response to an SEC study released in January 2011 in which Walter revealed in detail her opinion on naming an SRO to regulate RIAs. In the study she commented on, the SEC staff recommended the SEC continue to be responsible for examining RIAs and that its effort be financed by user fees paid by RIAs.
Walter responded with a searing attack on the SEC staff’s recommendation.
“I would have strongly preferred that the study make more precise and objective recommendations,” Walter wrote in her eight-page public statement sharply critical of the staff position.
Walter was named by President Obama as chairman designate yesterday, just as current SEC Chair Mary Schapiro announced she was leaving her position on December 14. Naming Walter chairman-designate was a deliberate move by Obama. It allows Walter to remain chair through 2013 without going through Congressional confirmation hearings, which could become a politicized process given the Republican majority in the Senate.
Walter is a veteran regulator whose career has paralleled Schapiro’s. Before becoming an SEC commissioner in July 2008, Walter worked at the Financial Industry Regulatory Authority, the SRO for brokerage firms that Schapiro headed. Before that, Walter was general counsel at the Commodity Futures Trading Commission, where she overlapped with Schapiro’s tenure. Walter’s voting record at the SEC has been almost identical to Schapiro’s.
One big difference between Schapiro and Walter, however, is that Schapiro recused herself from the SEC’s deliberations and decisions on whether to make FINRA the SRO for RIAs, citing her former position running FINRA. Walter has no reservations about her position on RIA regulation, and her public statement as an SEC commissioner in response to the staff’s January 2011 recommendation demonstrated her willingness to advocate for an SRO and against continued direct oversight by the SEC of RIAs .
“I believe that the Commission is not, and, unless significant changes are made, cannot fulfill its examination mandate with respect to investment advisers,” Walter said in her statement supporting an SRO solution for regulation of RIAs. “That is the case even though the Dodd-Frank Act decreased substantially the number of investment advisers subject to the agency’s jurisdiction. And, that would be the case even if the Commission had the resources to double its examination frequency percentage, returning to the 2004 frequency level of 18%. Eighteen percent coverage annually is better than 9%, but still insufficient."
Walter’s statement cited statistics in the SEC staff report showing that FINRA examined 57% of its members in 2008, and 54% of them in 2009, and that the National Futures Association, the SRO for the futures industry, examined 33% and 30% of its members in 2008 and 2009, respectively.
“Thus, OCIE’s (Office of Compliance Inspections and Examinations) current examination rate for investment advisers (9%)—which it estimates could drop as low as 7% in 2011 if additional examiners are not added—would have to increase by nearly five times to reach the average SRO examination rate for these years (43.5%), and more than six times to reach the average rate at FINRA (55.5%),” Walter said in her statement. “To increase the frequency to FINRA’s average, OCIE would need to add more than 2,000 examiners to its advisory program, bringing the total to about 2,500. To provide context for those numbers, OCIE currently has about 850 full-time employees covering all of its programs, and the Commission overall has about 4,000 full-time employees. It is an understatement to say that these increases would be difficult to achieve.”
Walter’s strong support does not absolutely, postively seal the regulatory fate of RIAs dreading FINRA being named as their SRO. Her appointment to the chairmanship leaves a vacancy on the Commission, which is now comprised of two Democrats and two Republicans. Walter is a Democrat and has replaced Schapiro who was an independent. Obama is expected to nominate a new commissioner fairly soon to reduce the likelihood of deadlocked votes by the Commission.
It is still possible that Consumer Federation of America, Investment Advisers Association and Financial Planning Coalition – a coalition representing the Financial Planning Association, National Association of Personal Financial Advisors and CFP Board of Standards — can succeed in its effort to allow the SEC to continue to conduct direct oversight of RIAs. However, with the incoming chairman of the SEC such a strong proponent for the SRO option, the odds of FINRA being named the regulator of RIAs are undoubtedly much higher than they were before her appointment.
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SEC Chairman Mary Schapiro To Step Down In Three Weeks |
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Monday, November 26, 2012 16:02
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Tags: sec After nearly four years in office, SEC Chairman Mary L. Schapiro today announced that she will step down on Dec. 14, 2012. Schapiro served as chair through one of the most turbulent times in financial history. It's rare for the SEC chair to serve more than four years and Schapiro for months had reportedly told those close to her she was exhausted, having served at a time when the agency was held in low regard after the lax regulation that led up up the financial crisis. This Website Is For Financial Professionals Only
While much work remains to be done before the SEC can reclaim its once respected reputation, the agency in each of the past two years brought more enforcement actions than ever before, including 735 enforcement actions in fiscal year 2011 and 734 actions in FY 2012. (SEC Press Release)
While no clear successor to Ms. Schapiro has been publicly discussed by the Obama admnistration, The New York Times is reporting that Mary J. Miller, a senior Treasury Department official, is under consideration for the job. Others reportedly in the running: Sallie L. Krawcheck, a former top executive at Citigroup and Bank of America and SEC enforcement chief, Robert Khuzami
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Financial Stability Oversight Council Proposes Three Alternative Structures For Money Market Funds And Puts Them Out For Comment |
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Wednesday, November 14, 2012 13:32
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Tags: mutual funds | New Rules | regulation
The Financial Stability Oversight Council decided to open to public comment changes it plans to make in money market funds.
It is proposing three alternatives to the current structure. This Website Is For Financial Professionals Only
One would be to allow net asset values (NAV) to float by removing the special exemption that currently allows money funds to use either amortized cost accounting or penny rounding to maintain a stable value.
A second option would keep the stable NAV but require a buffer with a tailored amount of assets up to 1% to absorb daily NAV fluctuations.
The buffer would require that 3% of an account holder’s highest account value over $100,000 during the previous 30 days would be made available on a delayed basis. This account value amount is called the minimum balance at risk.
A third option would include both the stable NAV and the buffer but also would add other loss-absorption capacity to enhance the buffer’s effectiveness and possibly increase the resiliency of money market funds.
These other measures could include more stringent diversification requirements, increased minimum liquidity requirements, and more robust disclosure statements.
You can see more detail about the proposed changes here. |
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