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NEWSLETTER ARCHIVE

October 2016 – Fact: Everyone Dies

Representatives can fill a need that every retail client has!

It has been reported that 55% of Americans don’t have a will, leaving them vulnerable to costly court fees and legal battles. Those who do have their wills drawn up are generally older — historically, over 90% of probated wills have been made by individuals who were 60 years old or older. Additionally, probate costs American families up to $2 billion per year, of which up to $1.5 billion is paid in attorney fees. These costs can often be avoided with timely and knowledgeable estate planning.

Although many securities representatives are not qualified to provide legal or tax advice, many clients look to their securities representatives for help in planning for the disposition of their assets. Representatives who educate themselves about estate planning can provide a valuable service for clients navigating this often daunting and complicated process.

With proper estate planning, a financial representative can help their clients develop a plan that will ensure peace of mind regarding some of their greatest fears surrounding their ultimate demise:

  • Who will inherit my assets?
  • In what situations will I need a power of attorney?
  • What if I suffer from loss of capacity?
  • What will happen to my retirement accounts?,
  • How can I avoid the expense of probate?
  • What will happen to my business interests?

This month’s newsletter, “The Role of a Registered Representative in Estate Planning” provides an overview of the extent to which a securities representative can be a part of the estate planning process — a process that every retail client will need. The article discusses specific questions to ask clients, taxation issues, the analysis of client data, and the regulatory concerns surrounding professional designations in the estate planning process.

Click here for your copy of the newsletter “The Role of a Registered Representative in Estate Planning”

About the Course

Estate Planning will help representatives, their supervisors, and any financial services industry professional learn how to better assist clients with this important task. While sometimes difficult to discuss, a well-conceived estate plan is critical to long-term financial success for families. This course outlines the necessary information to gather from clients to help educate them about their estate planning options.

Topics such as financial powers of attorney, life insurance, and living wills, which set forth a client’s wishes regarding medical decisions, are discussed. In addition, asset distribution upon the client’s death and beneficiary designations are highlighted. Finally, taxation issues and how the appropriate plans and investment vehicles can help maximize an estate’s value are reviewed. Students who complete Estate Planning will be in a better position to help their clients develop, review, and execute basic estate planning.

September 2016 – Red Flags — The Clues to Combating Illegal Activity

Training Brokers and Operations is Critical for an Effective AML Program

The USA PATRIOT Act specifically requires your firm to establish a program to prevent money laundering and interdict possible terrorist financing activities.

Brokers who open new accounts are the first line of defense in protecting your firm. Their role is to follow firm procedures that may identify warning signs in customer accounts and escalate any suspicious activities to the attention of a supervisor or your firm’s compliance department.

The role of operations specialists or supervisors is to provide a second review of new accounts. You should continue to monitor the account process according to your firm’s policies and procedures manual, being especially mindful of the PATRIOT Act requirements.

This month’s newsletter, “Identification of Red Flag Activities,” provides specific lists of activities during the life of an account that are considered red flags and would require your firm to take action upon the discovery of these activities.

Click here for your copy of the newsletter “Identification of Red Flag Activities”.

About the Course

AML Red Flags – Retail & Operations presumes that the reader has a basic understanding of the anti-money laundering requirements under the PATRIOT Act. The course details the role of a retail broker and an operations specialist in monitoring and evaluating firm risks in the operation of a broker/dealer. The course describes requirements for identifying and handling suspicious activities that may be linked to money laundering or other crimes.

In addition, the course briefly reviews a retail broker’s obligation to “know your customer,” as well as the important role of an operations specialist in the prevention of money laundering. The course focuses on red flags during three activity points during the life of an account: The opening, after opening, and transactions. Finally, a review of knowing how and when to report a suspicious activity is an essential part of keeping a firm in compliance with the PATRIOT Act.

August 2016 – 88 Million Participating in 500,000 401(k) Plans in the U.S.!

What is the story behind this relatively new retirement option?

401(k)s have been a retirement option for only 35 years, and yet roughly 28% of the U.S. population is participating. As mentioned in earlier articles, retirement planning is one of the most important and complex financial tasks clients will undertake in their lives. At a bare minimum, registered representatives should educate themselves about the various retirement plans and products before recommending them to their clients. Since 401(k)s are one of the more popular retirement vehicles, reps should understand their historical evolution — doing so will set themselves apart and demonstrate credibility in the industry and a commitment to their career.

“History cannot give us a program for the future, but it can give us a fuller understanding of ourselves, and of our common humanity, so that we can better face the future.” – Robert Penn Warren1

This month’s newsletter “A History of Retirement Plans and the 401(k)” is an excerpt from our Firm Element CE Course 401(k) Plans. This article discusses how some of the first pension plans in the United States were created, and how they evolved and gave rise to the Employee Retirement and Security Act (ERISA). The article also provides a timeline history of 401(k) plans that illustrate why they have become so popular.

Click here for your copy of the newsletter “A History of Retirement Plans and the 401(k)”.

About the Course

401(k) Plans gives students a detailed overview of one of the most popular retirement investment vehicles. The course begins with a broad history of retirement planning and ERISA, and introduces the two main types of retirement plans. Lesson 2 discusses 401(k) plans in detail, highlighting contributions, distributions, and withdrawals, as well as eligibility and vesting. Lesson 3 delves into what options are available when a plan participant leaves an employer, and covers rollovers and Roth 401(k)s. The final lesson gives an overview of the Department of Labor’s new fiduciary standard and how it will affect 401(k)s.

1 Age-of-the-sage, retrieved 8/18/16 from: http://www.age-of-the-sage.org/philosophy/history/learning_from_history.html

July 2016 – Big Changes for Reps Who Work with Retirement Plans

Retirement planning is one of the most important and complex financial tasks clients will undertake in their lives. Registered representatives who are educated about all the various retirement options can provide significant assistance to clients. However, reps who work with these investments may now be deemed fiduciaries under new, complex Department of Labor and ERISA rules.

The changes are significant and will impact the entire industry. Registered representatives will need to education themselves about the new rules’ impact to find the answers to obvious questions such as:

  • How are the new rules going to affect my recommendations to retirement accounts and rollovers?
  • Will the new rules affect my annuity recommendations?
  • Are there any prohibited transactions that I need to worry about?
  • What is the Best Interest Contract Exemption (BICE) and how will it help me gain relief from compensation restrictions?

This month’s newsletter “Big Changes for Reps Who Work with Retirement Plans” is an excerpt from our Firm Element CE Course Traditional IRAs and Rollovers. This article will discuss the scope of the DOL’s new rules, with respect to how it will impact representatives who are not registered investment adviser representatives and traditionally have not charged a fee for their advice.

Click here for your copy of the newsletter “Big Changes for Reps Who Work with Retirement Plans”

About the Course

Traditional IRAs and Rollovers describes the creation and use of traditional IRAs and how they can be applied to your clients’ retirement and estate planning. In addition, the course outlines the components that can serve as a guide when an investor is selecting between traditional IRAs and Roth IRAs for new investments, or is considering a rollover. Certain tax implications are discussed, as well as recent regulatory guidelines concerning IRAs and suggestions for ensuring that firms and registered reps are in compliance. Finally, the course outlines recent Department of Labor regulations regarding ERISA fiduciary status and how they apply to IRAs.

June 2016 – Avoid “Failure to Supervise” Claims

Create Evidence of Supervision

Some of the best practices employed by compliance professionals who avoid failure to supervise allegations, is to consistently document their supervisory efforts. These professionals will have a system of documenting, (and retrieving), meeting notes, conversations, red flags, investigations, and follow-up activities. All in an effort to provide verification of how they satisfied the supervisory requirements delegated to them.

One common method of creating evidence of Supervision, is in a firm’s surveillance program. By utilizing exception reports, a supervising principal can use these reports to create evidence of supervision. This month’s newsletter is an excerpt from our Firm Element CE course, Supervision & Surveillance, which provides a review of the most common types of exceptions reports, along with what these reports could indicate.

Click here for your copy of “Surveillance with Exception Reports”

About the Course

Supervision & Surveillance covers FINRA Rule 3110, Supervision (effective December 2014), which applies to supervision and supervisory control systems. It discusses surveillance tools that can help a firm and its supervisory employees stay on the right side of the regulators and provide the best client experience.

The course also provides an overview of responsibilities for creating a compliance system with a risk management process that protects a firm from violations, fines, and fraud. It details ways in which policies, procedures, and reports are used to effectively supervise registered representatives and to create a culture of compliance by identifying patterns and trends that pose a risk to the firm and to clients.

May 2016 – Avoiding Fiduciary Status per the DOL’s New Rule

Exceptions to the Investment Advice Standard

The role of fiduciary must be taken very seriously and thoughtfully. Many reps are not able to fulfill this role for a variety of reasons but still have much to offer a retirement plan client. Perhaps your firm’s policy doesn’t allow reps to undertake fiduciary responsibility or a rep chooses not to be held to that higher standard. What can these financial services professionals offer retirement plan participants and beneficiaries without crossing the line into fiduciary status? The answer is plan information and participant education.

This month’s newsletter is an excerpt from our Firm Element CE course, ERISA & the Fiduciary Standard. This article details the types of communications that could be used by a representative or adviser that would not invoke the fiduciary status or be considered a recommendation under the new rule. Included are the definitions of various types communications categorized as “Plan Information and Participant Education” that are considered exceptions from the fiduciary standard.

Click here for your copy of “Avoiding Fiduciary Status with Plan Information and Participant Education”

About the Course

ERISA & the Fiduciary Standard explores how the rules that mandate who is a fiduciary under ERISA have been significantly changed. Through this course, students will learn what it means to be a fiduciary in the eyes of ERISA and the Department of Labor. The top responsibilities of fiduciaries are listed, as well as an overview of actions that are prohibited and which could result in disciplinary actions. Lesson 2 explains the rule changes that will greatly affect broker/dealers and their registered representatives.

The course discusses the current regulatory focus on ERISA retirement plans and IRAs and what firms and reps should do to stay in compliance with the new rules to avoid conflicts of interest, which could result in personal liability.

April 2016 – Don’t Let Money Laundering History Repeat Itself…

Every year FIRE Solutions develops a new Firm Element CE course called AML Current Issues, which highlights the latest trends and statistics. Although learning about the new methods that criminals use to launder money is essential, the financial services industry must be ever alert to the red flags for tried and true methods of money laundering. The most popular methods, or variations of them, are still in use today and continue to pose a threat to our U.S. financial system.

This month’s article is an excerpt from our new course, Anti-Money Laundering — A Historical Review, and highlights one of the more complicated methods of money laundering, Trade-Based Money Laundering (TBML). The physical movement of goods through the trade system is one method used by criminal organizations and terrorist financiers to move money for the purpose of disguising its origins and integrating it into the global economy. The Black Market Peso Exchange, described in this month’s article, is a basic example of a TBML.

Click here for your copy of “Trade-Based Money Laundering (TBML)”

About the Course

Anti-Money Laundering — A Historical Review was developed to give financial services professionals a review of past trends in money laundering schemes. Lesson 1 briefly reviews anti-money laundering basics, while Lessons 2 and 3 look at some of the most recent hot topics in the reporting of suspicious activity, trendy schemes in moving money both abroad and in the U.S., and advisories from FinCEN and FINRA. The course concludes with case studies that highlight the consequences of noncompliance with anti-money laundering rules and regulations.

March 2016 – The Great Fiduciary Culture Shock

The new fiduciary standard is currently one of the most hotly debated issues resulting from the Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act). The controversy in question is being proposed by the Department of Labor to expand its definition of who is a fiduciary, and those changes are going to be shocking to the current way some representatives and advisers conduct their business. As regulatory reform is poised to change the playing field, it is important to insure that representatives understand what distinguishes a fiduciary from a non-fiduciary, and how the Dodd-Frank Act will standardize the level of care administered by fiduciaries and non-fiduciaries.

This month’s excerpt, “The Department of Labor’s New Fiduciary Rule,” is taken from the FIRE Solutions Continuing Education course, ERISA – Retirement Plans and the Fiduciary Standard. The article examines the key issues surrounding the debate over the new fiduciary standards and also focuses on how coming changes to the existing fiduciary rules will affect the way that retail and institutional sales reps currently do business.

Click here for your copy of “The Department of Labor’s New Fiduciary Role”

About the Course

ERISA – Retirement Plans and the Fiduciary Standard discusses what it means to be a fiduciary in the eyes of ERISA and Department of Labor and how this differs from the SEC’s definition. The course explores the different standards that apply to investment adviser representatives and registered reps with broker/dealers, and how the rules that mandate who must act as a fiduciary may be changing. The top responsibilities of investment advisers acting as fiduciaries are listed as well as the deficiencies most commonly found in SEC examinations of investment advisers.

In addition, the course explains the current regulatory focus on ERISA retirement plans and IRAs and what firms and reps should do to stay in compliance and prepare for potential regulatory changes. Finally, ERISA – Retirement Plans and the Fiduciary Standard concludes with a look at some conflicts of interest and prohibited transactions that can arise in the course of business, and how failing to deal with them properly can result in disciplinary actions.

February 2016 – Cyber Storage…Cloudy with a Chance of Hackers?

One of the most recently discussed technological advances affecting both homes and businesses today is cloud storage. Cloud computing is becoming more and more common in business, including the financial services sector. The reasons for the recent popularity of cloud storage are obvious: Infrastructure flexibility, reduced cost and increased ease of data storage, reduced IT personnel cost, and possibly better security.

Financial services firms have been slower to jump on the cloud bandwagon than many other businesses, however, and with good reason. There is currently no single or regulatory definition of what a “cloud’ is. Among the concerns shared by broker/dealers and other financial firms are security of client data, perceived compliance issues, and the loss of control of confidential and proprietary data. In the world of financial securities professionals, client confidence and information privacy is of the utmost concern. Any potential breach could be catastrophic for a firm, so using caution when choosing cloud storage and selecting the right vendor, or ensuring the right tools if creating it in-house, is critical to most firms when considering cloud storage. In addition to these issues, other concerns financial services firms have include:

  • Whether or not storing data on a cloud meets regulatory and legal requirements
  • Unauthorized access by third parties or associated personnel
  • Reputational damage in case of a breach
  • The possibility of leaked proprietary technology
  • Concerns about outsourcing to and vetting third party cloud providers
  • Malware
  • Whether or not data will be as easily accessible if it is offsite

Read more »

Obviously all these issues must be taken into account when firms are evaluating whether or not to use cloud storage. Although FINRA has yet to take a definitive stand on cloud-based services to its members, it has provided guidance for firms wishing to use this technology. This month’s newsletter, “FINRA’s Guidance on Cloud Storage,” is an excerpt from FIRE’s Cybersecurity course, and includes an outline of FINRA’s suggested areas of focus for firms that are considering the move to cloud storage.

Click here for your copy of “FINRA’s Guidance on Cloud Storage

About the Course

Cybersecurity describes the importance of a cybersecurity program, beginning with FINRA’s perspective from its 2014 cybersecurity sweep and subsequent Report on Cybersecurity Practices, which includes the top three cybersecurity threats. The course explores the tactics used to hack into a firm’s systems and ways that firms and employees can prevent these breaches. Best practices for employees who handle confidential and sensitive information are discussed, and examples are given for the specific information that must be protected. Finally, FINRA’s eight resources for developing and advancing a firm’s cybersecurity program are laid out. Case studies and examples throughout the course help illustrate the need for a strict cybersecurity program.

January 2016 – Keeping an Ever-Vigilant Eye on AML Compliance

Recent reports have stated that ISIS is cutting its soldiers’ wages in half and indicated that the terrorist organization’s access to cash and traditional methods of funding have been tightened. Regulators and financial professionals who are trained to identify alternative funding techniques that terrorist organizations may use, such as crowdfunding on social media, can add to their financial pressure and help inhibit the efforts of terrorists to fund their operations.

It is imperative that financial professionals in the United States understand the ever-evolving landscape of money laundering efforts. A vigilant watch over those who try to circumvent our AML systems, such as through social media’s crowdfunding sites, will yield a strong and united front against drug trafficking, terrorism, and a host of other illegal activities.

Those firms whose anti-money laundering efforts are not as vigilant as required by regulatory standards are taking the heat. This month’s newsletter, “Anti-Money Laundering – Case Studies,” is a review of common mistakes and rule infractions made by securities and futures industry firms. It focuses on cases of criminal prosecutions and violations of industry insiders. The article provides a discussion of the rule violations, when individuals can be held accountable, when violations can occur even when no crime has been committed, and an increased awareness of the rules, which can reduce the risk of disciplinary actions.

Click here for your copy of “Anti-Money Laundering – Case Studies”

About the Course

Our Anti-Money Laundering – Current Issues 2016 course looks at the most recent trends in the reporting of suspicious activity, the newest schemes in moving money, countries in high-risk categories, the latest advisories from FinCEN and FINRA, as well as case studies that highlight the consequences of noncompliance with anti-money laundering rules and regulations.

In addition, the course highlights general principles which illustrate how financial institutions and their leadership may improve and strengthen organizational compliance with the Bank Secrecy Act and other AML regulatory obligations, and lists six primary ways a firm can strengthen its AML compliance culture.

October 2015 — Education Is Key in Avoiding Conflict of Interest Citations

Almost 25% of all disciplinary cases in the financial services industry involves some form of failure to disclose a conflict of interest. Many of these cases are a result of an inability to recognize what would be considered a conflict of interest, or an ignorance of the consequences for not disclosing a conflict of interest.

All industry professionals have a duty to their firm and to their clients to disclose any conflict of interest that could interfere with giving objective advice, making recommendations, and fulfilling the job responsibilities to the employing firm. A “failure to disclose” citation from a regulator may otherwise be preventable with the proper identification and disclosure of the most common types of conflicts of interest.

Read more »

This month’s article, “The Most Common Conflicts of Interest,” is an excerpt from the FIRE Solutions Firm Element CE course, Conflicts of Interest. The article discusses industry trends concerning conflicts of interest. It also outlines four of the most common types of conflict of interest in an effort to illustrate how these conflicts can have undue influence over investment recommendations.

Click here for your copy of the newsletter, “The Most Common Conflicts of Interest”

About the Course

Our Conflicts of Interest course discusses the various conflicts of interest occurring in the normal, day-to-day operations of retail registered representatives. The course offers a detailed description of FINRA’s recent focus on conflicts of interest and expectations for how firms should go about managing these conflicts. The course concludes with a discussion of mandatory disclosure obligations. Throughout the course, various case studies help illustrate the importance of developing a strong framework for managing conflicts of interest.

September 2015 — Baby Boomers Rolling into Retirement in Great Numbers

Will your firm be ready as the number of seniors continues to increase?

Over 41 million people are age 65 and older. This number is expected to almost double to 79 million by 20401, when one out of every five Americans will be 65 or older. For those in the financial services industry, this means that our seniors are living longer and need to make their investments last longer.

Additionally, 34% of enforcement actions taken by state securities regulators since 2008 have involved senior victims in states that track victims by age, according to the North American Securities Administrators Association. Regulators want to emphasize that the same degree of duty and service should be demonstrated to all clients regardless of age, although they recognize that seniors have been specifically targeted by many investment schemes. Because seniors typically have limited means of income and less time to recover from financial mistakes, the effects of fraud or even just a lack of awareness about the unique variables surrounding their investments can be especially devastating.

Read more »

This month’s article is an excerpt from the FIRE Solutions Firm Element CE course Sales Practices for Seniors. The article discusses FINRA’s recent National Senior Investor Initiative Report, which outlines the findings of a focused examination of 44 broker/dealer firms, in an effort to learn more about how broker/dealers and their representatives deal with the unique investment needs of seniors.

Click here for your copy of the newsletter “Senior Investors — Why the Regulatory Focus?”

About the Course

Sales Practices for Seniors reviews fraudulent and misleading activities discovered during regulatory examinations initiated by industry regulators and outlined in FINRA’s recent National Senior Investor Initiative Report. Also highlighted are legitimate products and sales practices that can be problematic for seniors, since this group often has unique suitability factors that must be considered. Even firms with the best intentions have received deficiency letters and fines because they demonstrated a lack of sensitivity to senior clients and their unique issues.

Also covered in this course are “free lunch” seminars, the misuse of professional designations, and suitability factors unique to seniors. Lastly, the course outlines how to recognize and what to do when a client displays diminished capacity or elder abuse. A take-away exercise is included to help you clarify your firm’s policies and procedures regarding these issues.

August 2015 — Are You Complying with the Changes in Fair Dealing Rules?

FINRA Reminds Firms About Substitute Interest Disclosures

FINRA has recently published guidance with respect to MSRB’s fair dealing and disclosure requirements. To help firms keep municipal securities professionals up-to-date with all their fair-dealing obligations, FIRE Solutions has amended its Firm Element training materials to include this recent guidance related to disclosure obligations for substitute interest payments.

The rules of fair trade require that prior to or during any transaction with a customer, all material facts that could affect the customer’s decision regarding the securities offered must be disclosed. If brokers, their representatives, or municipal securities dealers omit any material facts that are relevant to the security’s value, they are misleading the investor and violating securities rules and laws. These provisions apply when a broker or dealer is transacting with investors and with other broker or dealers.

Read more »

This month’s article, “MSRB’s New Disclosure Requirements for Substitute Interest in Municipal Short Positions,” is an excerpt from the FIRE Solutions Firm Element CE course, MSRB — Fair Dealing and Sale Practices. The article discusses recent FINRA concerns that firms do not have adequate procedures in place to ensure the disclosure of possible tax consequence of substitute interest payments.

Click here for your copy of the newsletter “MSRB’s New Disclosure Requirements for Substitute Interest in Municipal Short Positions.”

About the Course

MSRB — Fair Dealing and Sales Practices provides an overview of municipal securities and who deals in them. We look at the rules and regulations that affect municipal securities transactions, as well as some of the sales practices that should be followed. We discuss the limits on gifts, entertainment, and non-cash compensation, as well as limits on political contributions. Finally, we delve into the different disclosures that issuers, brokers, dealers, and municipal securities dealers must provide to the regulators, the public, and clients.

April 2014 — Empowering Small Firm Compliance

“Entrepreneurs and their small enterprises are responsible for almost all the economic growth in the United States.” — President Ronald Reagan

Small firms, often defined as those with 150 or fewer reps, account for approximately 70% of all registered broker/dealers. The number of small firms has been declining since the financial crisis in 2008, when many either closed their doors or were acquired by larger firms. Since then, the financial services industry has been under fire from politicians and regulators. In addition, high profile scandals such as the Bernie Madoff Ponzi scheme have shaken faith in the industry considerably. Regulators have responded by attempting to make the industry safer for the investing public.

Read more »

The most significant piece of legislation to stem from the financial debacle is the Dodd Frank Financial Regulatory Reform Bill. The text of the bill is nearly 850 pages and was officially passed by Congress in 2010, but many of the provisions and stipulations are still being finalized. This has increased both the costs and uncertainty of adhering to regulation. It also puts smaller firms at a disadvantage in terms of hiring expensive lawyers, consultants, and accountants to decipher the bill, as well as forcing them to purchase the technology to help ensure compliance with the new rules. Larger broker/dealers have proven better able to navigate these types of new regulations. In some cases, they have considerable lobbying capabilities and are able to influence the outcome of the regulation — something smaller firms have little hope of doing.

About the Course

Small Firm Compliance is an intermediate to advanced course for individuals within a small broker/dealer firm who perform supervisory and compliance functions (or are preparing for this role) and must be aware of the relationship between setting compliance policies and reducing regulatory risk to the firm. It is also suitable for all registered individuals of a small firm. Students taking this course are expected to have a general understanding of compliance within a broker/dealer.

The regulatory rules that all firms must follow tend to cater to the larger firms with more financial resources and personnel to fulfill their compliance obligations. Regardless, small firms are required to comply as well in nearly every regard, to every rule.

The first two lessons in this course outline basic compliance issues inherent in all firms. It provides an overview of the responsibilities for creating a compliance system that provides a process to manage a firm’s risks and prevent those risks from escalating into violations, fines, and fraud. The first two lessons also detail ways in which effective policies and procedures are used to effectively supervise registered representatives and to help create a culture of compliance.

The last two lessons deal with best practices, challenges, and resources that would be of most interest to small firms, including the limited size and resource exceptions. The regulatory hot spots are also revealed, as well as the best practices that small firms can use to strengthen their next regulatory examination.

Highlights of the course include:

Creating a Compliance Culture

  • Compliance system rules that guide broker/dealer securities activities
  • The primary elements of compliance success
  • How to explain the value of compliance to management
  • FINRA’s annual CEO certification rule
  • Customer interests as the prime concern for compliance departments and regulators

Effective Supervisory Controls

  • The role of supervisory procedures and their relationship with compliance procedures
  • How to write effective and thorough procedures and test supervisory controls
  • Conflicts of interest in a small firm

Best Practices & How to Strengthen your Regulatory Examination

  • The challenges that affect a small broker/dealer
  • How to develop, update, and enforce written supervisory procedures
  • Use of exception reports
  • Internal audits
  • Monitoring outside business activities

Regulatory Hot Spots of Interest to Small Firms

  • The Small Firm Advisory Board (SFAB) and how it advocates for firms
  • Suitability
  • Senior accounts
  • Outside business activities
  • Cyber security
  • Business Continuity Plans

March 2014 — Keeping Online Communications on a Regulatory Leash

Online communications is a constant in the financial services industry — the need for appropriate, yet speedy discourse touches every facet, on every level, at every firm. While the Internet has simplified many tasks for financial services professionals, it has also created a regulatory monster. Since the beast is here to stay, our only recourse is to keep it on a regulatory leash via FINRA along with each firm’s up-to-date policies and procedures. The regulators are fully aware of the supervisory challenges associated with monitoring online communications and are ready to get tough by doling out disciplinary actions for noncompliance. Will you be thrown into the heap of well-meaning but unprepared firms and reps who will be tagged for a violation?

This month’s article, “Supervision of Online Communications,” is an excerpt from the FIRE Solutions Firm Element CE course, Communications — Use & Supervision of Social Networking Sites & Blogs. The article is an overview of best practices that helps firms comply with the supervisory requirements of online communications. Included in the article are review considerations for the supervision of static and real-time interactive content.

Read more »

About the Course

Communications — Use and Supervision of Social Networking Sites and Blogs is designed to fulfill training requirements for those firms that allow their representatives to use social networking sites and blogs for business purposes.

Lesson 1 discusses the different types of communications that can be transmitted via social networking sites and blogs. It examines investment recommendations and helps students understand what is considered a recommendation and what is not. The general standards of communication are included to remind students that regardless of how the communications are sent, they must be honest, appropriate, and follow regulatory guidelines.

Lesson 2 addresses the supervision of social networking sites and blogs, including the review and approval process and record retention requirements.

Highlights of the course include:

Using Social Networking Sites & Blogs

  • The elements of social networking sites and blogs
  • Postings by third parties
  • Making recommendations via social networking and blogs
  • Standards of communications

Supervising Social Networking Sites & Blogs

  • The retention requirements of social networking sites and blogs
  • Supervising postings by third parties

Other Firm Element communication courses offered by FIRE solutions include:

  • Communications with the Public
  • Electronic Communications
  • Email Etiquette
  • Institutional Communications (New in 2014)
  • Supervision of Communications

February 2014 — Could Your Firm Afford a $461 Million or Even a $350,000 Fine?

If a penalty of that magnitude didn’t close a firm’s doors, it would certainly cause a deep fissure in the firm’s structure and lead to client distrust. That’s why it is so important for firms to understand the regulatory developments and enforcement activities surrounding the U.S. federal anti-money laundering efforts.

This month’s newsletter, “Anti-Money Laundering — Case Studies,” is a review of common mistakes and rule infractions made by securities and futures industry firms. The article includes excerpts taken from our recently released AML Current Issues — 2014 course and provides an increased awareness of the rules, as well as a discussion of rule violations and when a firm has a duty to investigate.

Read more »

It is crucial that financial professionals in the United States remain aware of the changing landscape of anti-money laundering efforts. A vigilant watch over those who try to circumvent our AML systems will yield a strong and united front against drug trafficking, terrorism, and a host of other illegal activities.

About the Course

AML Current Issues — 2014 is intended for securities industry professionals interested in the latest developments and trends in anti-money laundering efforts, as well as the changing regulatory environment. This course presumes that the reader has a basic understanding of the AML requirements under the Patriot Act.

In addition, this course looks at the most recent trends in the reporting of suspicious activity, the newest schemes in moving money, countries in high-risk categories, as well as case studies that highlight the consequences of noncompliance with anti-money laundering rules and regulations.

Highlights of AML Current Issues — 2014 include:

Money Laundering “By the Numbers”

  • The filing requirements of Suspicious Activity Reports (SARs)
  • A review of with whom SAR information can shared
  • A breakdown of the different types of suspicious activity reported
  • An overview of the types of financial instruments used in money laundering
  • A look at the types of individuals and entities that file SARs in the securities and futures industries

Enforcement Around the Globe

  • Functions of the Financial Action Task Force (FATF)
  • A look at correspondent accounts
  • A breakdown of jurisdictions with deficiencies in anti-money laundering and counterfinancing terrorism regimes
  • North Korean illicit financing threat

Case Studies

  • Recent cases of broker/dealers that violated the Bank Secrecy Act with deficiencies in their AML programs

January 2014 — Illuminating the Gray in White Collar Ethics

When the rules don’t go far enough

High ethical standards are important to the entire industry. As professionals, we are responsible for our actions and the integrity of our profession. Unfortunately, the regulations don’t always provide black-and-white guidance for every situation or ethical dilemma.

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Consider the following situation:

You overhear a conversation between Sarah and Bob, two brokers at ABC Investments. Sarah’s biggest client, Gene, recently placed a large order that helped Sarah meet her quarterly sales goals. Sarah believes Gene placed the trade because he landed a huge purchasing contract with ABC Investments. Sarah goes on to say that her cousin Terry, with whom she is very close, placed a telephone call to a member of ABC’s purchasing committee who happens to be Terry’s best friend.

Even though this may not directly violate industry gift rules, this scenario potentially could still violate the firm’s code of ethics as it relates to favoritism with clients.

  • Should you report this conversation to your manager?
  • What if it’s not true?
  • Who will know?
  • What should you do?

When it comes to wrestling with ethical dilemmas, there are two schools of thought. One says, “As long as it doesn’t hurt anyone…” and the other says, “It’s just wrong.” To which school of thought does your firm subscribe? Are your representatives aware of this standard?

This month’s newsletter, “The Motivation for Unethical Behavior,” discusses the contributing factors that can lead to unethical behavior. Awareness of these factors can help to identify and possibly prevent the potential for an ethical dilemma.

About the Course

Ethics — General focuses on ethics and ethical behavior in the securities industry. Lesson 1 differentiates between ethics and morals and offers possible motivations for “white collar” crime. In addition, the course offers steps to take when one is struggling with an ethical dilemma. Lesson 2 identifies ethical best practices for registered representatives, including the ethical standards that reps must follow when interacting with customers.

The final lesson of the course touches on professional behavior and attitudes and the impact they have on the integrity of the securities profession. Recent case studies are presented throughout to emphasize the course material.

Highlights of Ethics — General include:

Ethical Standards in Customer Interactions

  • A description of ethics vs. morals
  • Defining ethical character
  • “Take your ethical temperature” exercise
  • Determining what steps to take when faced with an ethical dilemma
  • Understanding white collar ethics

Ethics and Conduct Rules

  • Dealing with customers under regulators’ conduct rules
  • Identifying unethical behavior
  • Ethical and unethical practices in communications with the public
  • Handling material information
  • Making suitable recommendations
  • Disclosure req

Professional Behaviors & Attitudes

  • Characteristics of high professional standards
  • Conduct that promotes honesty in customer interactions
  • Methods to earn your customers’ trust and confidence
  • Actions that uphold the honor of the profession
  • Case study
  • Reporting unethical behavior

November 2013 — Got AML Training?

Identifying red flags critical to combating illegal activity

The USA PATRIOT Act specifically requires your firm to establish a program to prevent money laundering and interdict possible terrorist financing activities.

Read more »

Brokers who open new accounts are the first line of defense in protecting your firm. Their role is to follow firm procedures that may identify warning signs in customer accounts and escalate any suspicious activities to the attention of a supervisor or your firm’s compliance department.

The role of operations specialists or supervisors is to provide a second review of new accounts. You should continue to monitor the account process according to your firm’s policies and procedures manual, being especially mindful of the PATRIOT Act requirements.

This month’s newsletter, “Identification of Red Flag Activities” provides a specific list of activities that are considered red flags and would require your firm to take action upon the discovery of these activities. Familiarity with these red flags can go a long way to help your firm monitor terrorist activities and money laundering.

About the Course

AML Red Flags – Retail & Operations presumes that the reader has a basic understanding of the anti-money laundering requirements under the PATRIOT Act. The course details the role of a retail broker and an operations specialist in monitoring and evaluating firm risks in the operation of a broker/dealer. The course describes requirements for identifying and handling suspicious activities that may be linked to money laundering or other crimes.

In addition, the course briefly reviews a retail broker’s obligation to “know your customer,” as well as the important role of an operations specialist in the prevention of money laundering. The course focuses on red flags during three activity points during the life of an account: The opening, after opening, and transactions. Finally, a review of knowing how and when to report a suspicious activity is an essential part of keeping a firm in compliance with the PATRIOT Act.

Highlights of AML Red Flags-Retail & Operations include:

Managing AML Risks

  • High-risk accounts and activities
  • New customer identity verification
  • The process to identify terrorist ties
  • Your role in monitoring current accounts for unusual activity

Money Laundering Prevention

  • A representative’s perspective on money-laundering prevention
  • An operation specialist’s perspective on money-laundering prevention
  • AML red flags during account opening
  • AML red flags after the account is opened
  • AML red flag transactions
  • Red flag reporting obligations

September 2013 — Illuminating the Gray in White Collar Ethics

When the rules don’t go far enough

High ethical standards are important to the entire industry. As professionals, we are responsible for our actions and the integrity of our profession. Unfortunately, the regulations don’t always provide black-and-white guidance for every situation or ethical dilemma.

Read more »

Consider the following situation:

You overhear a conversation between Sarah and Bob, two brokers at ABC Investments. Sarah’s biggest client, Gene, recently placed a large order that helped Sarah meet her quarterly sales goals. Sarah believes Gene placed the trade because he landed a huge purchasing contract with ABC Investments. Sarah goes on to say that her cousin Terry, with whom she is very close, placed a telephone call to a member of ABC’s purchasing committee who happens to be Terry’s best friend.

Even though this may not directly violate industry gift rules, this scenario potentially could still violate the firm’s code of ethics as it relates to favoritism with clients.

  • Should you report this conversation to your manager?
  • What if it’s not true?
  • Who will know?
  • What should you do?

When it comes to wrestling with ethical dilemmas, there are two schools of thought. One says, “As long as it doesn’t hurt anyone…,” and the other says, “It’s just wrong.” Which school of thought does your firm subscribe? Are your representatives aware of this standard?

This month’s newsletter, “The Motivation for Unethical Behavior” discusses the contributing factors that can lead to unethical behavior. Awareness of these factors can help to identify and possibly prevent the potential for an ethical dilemma.

About the Course

Ethics — General focuses on ethics and ethical behavior in the securities industry. Lesson 1 differentiates between ethics and morals and offers possible motivations for “white collar” crime. In addition, the course offers steps to take when one is struggling with an ethical dilemma. Lesson 2 identifies ethical best practices for registered representatives, including the ethical standards that reps must follow when interacting with customers.

The final lesson of the course touches on professional behavior and attitudes and the impact they have on the integrity of the securities profession. Recent case studies are presented throughout to emphasize the course material.

Highlights of Ethics — General include:

Ethical Standards in Customer Interactions

  • A description of ethics vs. morals
  • Defining ethical character
  • “Take your ethical temperature” exercise
  • Determining what steps to take when faced with an ethical dilemma
  • Understanding white collar ethics

Ethics and Conduct Rules

  • Dealing with customers under regulators’ conduct rules
  • Identifying unethical behavior
  • Ethical and unethical practices in communications with the public
  • Handling material information
  • Making suitable recommendations
  • Disclosure requirements
  • Case study

Professional Behaviors & Attitudes

  • Characteristics of high professional standards
  • Conduct that promotes honesty in customer interactions
  • Methods to earn your customers’ trust and confidence
  • Actions that uphold the honor of the profession
  • Case study
  • Reporting unethical behavior

August 2013 — Demystify the Process of Complex Product Supervision

Discover tools that will help you uncover noncompliance

In 2012, FINRA sanctioned four firms $9.1mm for not having a reasonable basis for recommending the sale of complex products. The firms were fined more than $7.3 million and required to pay a total of $1.8 million in restitution to certain customers who made unsuitable purchases of complex products.

Read more »

Could this happen to you?

Representatives often feel pressure from their firms to meet sales goals, and even more pressure from clients who want them to outperform the market. Many representatives are lured by stories of Wall Street mavericks who beat the odds with complex products. All is well and good until it is discovered that the well-meaning representative lacked an adequate understanding of the products, and worse yet, so did the representative’s supervisor.

The following is a compliance minefield of potential complex product sales practice problems that could lead to complaints from clients and investigations from regulators:

  • Communications and failure to disclosure
  • Unsuitable transactions
  • Product misrepresentation
  • Unauthorized transactions
  • Churning
  • Patterns of noncompliance, e.g., excessive cancel/rebills
  • Misuse of customer funds
  • Markups/markdowns

This month’s newsletter, Detecting Complex Product Sales Practice Violations, provides a look at various methods of identifying sales practice violations that are characteristic of complex products. The insight provided in the newsletter will reveal the tools of sales practice surveillance derived from seasoned compliance officers. This newsletter is an excerpt taken from the FIRE Solutions Continuing Education course, Complex Products — Supervision.

About the Course

Complex Product — Supervision reviews various features that could characterize an investment product as “complex” and describes the specific concerns that regulators have with these features. The course explains why the sale of complex products has become a focus of regulatory examinations and helps supervisors recognize complex product sale practices that have been identified as problematic.

Additionally, the course outlines the five elements of successfully introducing complex products to a firm, including due diligence obligations, training, suitability and ongoing client review, supervisory obligations, and ongoing product evaluation. Finally, the course offers methods for detecting sales practice violations and monitoring daily representative activity.

Highlights of Complex Products — Supervision include:

Features of Complex Products

  • What is a “complex” product?
  • Features and factors that make a product “complex”
  • Asset-backed securities and their supervisory issues
  • Exchange-traded funds and their supervisory issues
  • Leveraged and inverse features
  • Structured products and their supervisory issues
  • Some traditional derivatives and their supervisory issues

Introducing Complex Products to Your Firm — The Five Elements

  • Five elements in introducing complex products to your firm
  • Due diligence obligations
  • FINRA Rule 2111, Suitability
  • Considering risk, expected return, and liquidity

Considerations When Supervising Complex Products

  • FINRA NTM 03-71 and the guidelines for conducting due diligence and a reasonable basis analysis
  • Failure to supervise
  • Methods for detecting sales practice violations
  • Monitoring for sales practice problems

July 2013 — Protect Your Career — for Supervisors of Exchange-Traded Products

Regulatory Expectations for Supervision

Regulators around the globe are adopting precautionary measures to address concerns with the distribution of complex products that may not be suitable for retail investors. Exchange-traded funds and exchange-traded notes, particularly those employing leverage, are cited as potentially confusing to retail investors and registered representatives, thus raising both suitability and supervisory concerns. The complexity of these products can impair an understanding of the market performance in a variety of time periods and market environments. This potentially can lead to unsuitable recommendations and sales.

Read more »

Heightened supervision is required with complex products and complying with your firm’s supervisory procedures and systems provides verification of how you satisfied those supervisory requirements. The more you understand how to protect yourself, your registered reps, and your firm, the more likely your clients’ needs will be met in sync with regulatory requirements. It is worth your career to prioritize the importance of supervision with ETPs, especially in light of FINRA’s targeted focus on complex products.

This month’s newsletter, entitled Case Study: Failure to Supervise Exchange-Traded Products, provides a look at a real-life situation in which a supervisor of exchange traded products failed to investigate various sales practice violations. The newsletter also provides an analysis of the red flags that should have induced the supervisor to take action. This newsletter is an excerpt taken from the FIRE Solutions Continuing Education course, Supervision of Exchange-Traded Products.

Supervision of Exchange-Traded Products (ETPs) is an advanced course intended for supervisors of registered representatives and investment adviser representatives, as well as institutional investors who recommend ETPs.

While they are relatively new investment products, exchange-traded funds (ETFs) and exchange-traded notes (ETNs) continue to gain in popularity. Supervision of Exchange-Traded Products explains why regulators have been so focused on these products, and what supervisors should be looking for when reviewing ETP transactions and the employees who recommend them. The course delves into leveraged and inverse ETPs, which are more complex and not suitable for all investors. In addition, a case study is provided for students to learn how other supervisors have failed to effectively supervise the sale of ETPs.

Highlights of Supervision of Exchange-Traded Products include:

Regulatory Concerns with Exchange-Traded Products

  • Suitability concerns with exchange-traded products
  • A closer look at exchange-traded notes and regulatory concerns
  • Leveraged and inverse exchange-traded products
  • Required suitability analysis

Considerations When Supervising Exchange-Traded Products

  • Introducing exchange-traded products to your firm
  • Due diligence requirements for exchange-traded products
  • Monitoring for sales practice problems
  • Reviewing exception reports
  • Monitoring representative activity
  • Case study — what happens when the principal fails to supervise?

June 2013 – Are Complex Products Too Complex for your Clients?

And will the regulators agree with your determination?

In the never-ending quest for higher yields, many investors are turning to the lure of innovative and complex products. Regulators have taken great interest in how these products are sold. Specifically, the focus is to ensure that those entities and persons involved with complex products — the firm offering the product, the representatives/advisers recommending the product, and the retail investors buying the product — all understand how the products function and produce a return.

Read more »

If your firm offers or transfers-in a mutual fund that contains any of the features outlined in FINRA’s advisory on complex products, then your firm may be obligated to identify it as a complex product and apply heightened supervisory procedures to its oversight.

This month’s newsletter, entitled Identification of Complex Products, provides an overview of features and factors to help you identify “complex” products. In addition, the newsletter gives a descriptive overview of one of the most complex products — Investments in Volatility — and includes a list of their specific issues that could be problematic for retail investors. This newsletter is an excerpt taken from the FIRE Solutions Continuing Education course, Complex Products — Regulatory Issues.


About the Course

Complex Products – Regulatory Issues reviews the various factors that could characterize an investment product as “complex.” It also introduces some of the complex features that these products can possess and describes the specific concerns that regulators have with these features. The course provides actions that firms, representatives, and advisers should take to eliminate any misunderstandings regarding expectations about the products. Finally, the course outlines the supervisory obligations related to the sale of complex products, and the process that firms must follow when introducing these products in their offering lineup.

For a more in-depth look at complex products, this course can be coupled with any of the following FIRE Solutions courses on complex or illiquid products:

  • Asset-Backed Securities: Nonconventional Investments
  • Exchange-Traded Funds
  • Hedge Funds
  • Investment Programs, DPPs & REITs
  • Mortgage-Backed Securities
  • New Products
  • Structured Products

Highlights of Complex Products — Regulatory Issues include:

Introduction to complex product features

  • What is a “complex” product?
  • Asset-backed securities
  • Investment programs, DPPs, and REITs
  • Reverse convertibles
  • Exchange-traded securities
  • Leveraged and inverse features
  • Structured products
  • Investments in volatility
  • Range accrual notes and CDs
  • Buckets, steepeners, and traunches

Supervision of complex and illiquid investments

  • Due diligence requirements for complex products
  • Complex product suitability
  • Supervision of complex products
  • Best practices

May 2013 – Broker/Dealers Put on Notice — Is Your Firm Prepared for Its Next Exam?

Broker/dealers have been notified that regulatory examinations will expand branch office inspections to assess the effectiveness of supervisory systems.

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In November 2012, the Securities & Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) collaborated with FINRA to issue a National Examination Risk Alert (Risk Alert). The Risk Alert provides guidance to broker/dealers in developing effective branch inspection programs in light of on-site observations of OCIE and FINRA staff and SEC enforcement cases.

Of particular note, the OCIE, which has historically conducted regulatory examinations at broker/dealer headquarters, will now focus on the broker/dealer’s ability to effectively inspect its own branch offices. As important, regulators will assess whether broker/dealers have implemented the guidance included in the Risk Alert.

This month’s FIRE on YOUR SIDE newsletter, entitled “High-Risk Products and Situations,” is an excerpt from one of our newest courses, Branch Office Inspections and Supervision. This course, as well as this month’s newsletter, is a training tool for compliance personnel to review and expand on guidance points included in this Risk Alert.


About the Course

Branch Office Inspections and Supervision is designed to help compliance officers and compliance personnel identify the expectations set by FINRA for the oversight of a broker/dealer’s branch supervisory structure. Regulators want to be sure that firms can govern themselves in a way that will detect and deter any rule violations. They also want to ensure that a firm’s self‐inspection programs are designed to test the strength of the firm’s compliance policies and procedures. This course will teach compliance personnel about regulatory expectations, and how to set up an inspection program that will meet those expectations.

Highlights of the course include:

  • Tailoring written supervisory procedures (WSPs) to the broker/dealer’s business
  • Principal designation required for business and registered representatives
  • The requirement and designation of Offices of Supervisory Jurisdiction (OSJ)
  • The purpose of the branch office inspection
  • High-risk products and situations
  • Timing of branch office inspections
  • Unannounced branch office inspections
  • Validating WSPs
  • The opportunity to gather on-site intelligence
  • The importance of experienced and knowledgeable inspectors
  • Five best practices for effective branch office inspection programs
  • Common deficiencies in branch office inspection programs
  • FINRA and OCIE target branch office inspection programs

April 2013 – Due Diligence for New Products – Will Your Firm Pass FINRA Scrutiny?

In an ever-changing economic environment, representatives continue to seek new ways of providing higher returns and lower risks. Many times that search leads to new products they have never sold, products that may be new to the firm, or products that are new to the industry.

Read more »

A firm may have been offering a product for years, but if a rep has not dealt with that product, it is new to the rep. Likewise, if a firm has never dealt with an existing product, it is new to the firm. Some products are new to the entire investing world. In addition to products that are new to the industry, some products have been around for years but are offered for the first time by a new issuer. For example, mutual funds have been in existence for many years, yet new fund families are being formed all the time.

Regulators have put a huge emphasis on the due diligence process, and will be focusing on a firm’s ability to identify when and how to document a due diligence review. This month, the FIRE Solutions newsletter is featuring, “Due Diligence — Asking the Right Questions.” In this excerpt from our course, New Products, you will be provided with some important questions that regulators want you to ask when considering a new product offering at your firm.


About the Course

Our New Products course outlines the regulatory expectations for approving, selling, and supervising new products. It also describes how to determine what a “new product” is, and provides specific definitions to many popular complex or nonconventional investments. Finally, the suitability factors specific to nonconventional investments are discussed. This course underscores the importance of the review and approval process as well as the regulatory expectations surrounding new product offerings.

Highlights of the course include:

  • The characteristics of a new product
  • Conducting due diligence
  • Training staff on new products
  • Marketing new products
  • The supervision of new products
  • Following up after the introduction of a new product

March 2013 – New Money Moving Methods Exposed!

Each year FIRE Solutions monitors the regulatory developments and enforcement activities surrounding the U.S. Federal Anti-Money Laundering efforts. Much of what we learn about the evolution of money-laundering strategies comes from a review of criminal cases and industry violations. It is important to learn from the misdeeds or mistakes of others in an effort to reduce our own regulatory risk surrounding AML rules.

Read more »

This month’s newsletter is focused on anti-money laundering alerts published by the Financial Crimes Enforcement Network (FinCEN) to raise awareness in the financial community about the latest methods used by criminals who seek to use the U.S. monetary system to launder money obtained from criminal activities, or money earmarked for terrorist activities.

It is so important for financial professionals in the United States to remain aware of the changing landscape of anti-money laundering efforts. A vigilant watch over those who try to circumvent our AML systems will yield a strong and united front against drug trafficking, terrorism, and a host of other illegal activities.


About FIRE’s AML Current Issues 2013 Course

AML — Current Issues 2013 is intended for securities industry professionals interested in the latest developments and trends in anti-money laundering efforts, as well as the changing regulatory environment. This course looks at the most recent trends in the reporting of suspicious activity, the newest schemes in moving money, countries in high-risk categories, as well as case studies that highlight the consequences of noncompliance with anti-money laundering rules and regulations.

Highlights of the course include:

  • The importance of Suspicious Activity Reports (SARs)
  • A breakdown of the different types of suspicious activity reported
  • An overview of the types of financial instruments used in money laundering
  • A look at the types of individuals and entities that file SARs in the securities and futures industries
  • A review of with whom SAR information can be shared
  • Functions of the Financial Action Task Force (FATF)
  • A look at correspondent accounts
  • A breakdown of jurisdictions with deficiencies in anti-money laundering and counter-financing terrorism regimes
  • U.S. currency restrictions in Mexico
  • Recent cases of broker/dealers that violated the Bank Secrecy Act with deficiencies in their AML programs

February 2013 – The New Communications Rule — Will Your Firm Pass FINRA Scrutiny?

Understanding and following FINRA’s communications rules is a constant requirement in this industry – the need for appropriate communication touches every facet, on every level, at every firm. Our regulators are very aware of this, and the disciplinary actions for noncompliance with the recent communication rule changes are expected to mount. Make sure your firm is not thrown into the heap of well-meaning, but undereducated reps and firms who will be tagged for a violation.

Read more »

FINRA Rule 2210, Communications with the Public, effective February 4, 2013, superseded NASD Rule 2210, also titled Communications with the Public. The old NASD rule divided communications into six categories:

  • Advertisements
  • Sales literature
  • Correspondence
  • Institutional sales material
  • Independently prepared reprint
  • Public appearance

FINRA Rule 2210 has consolidated these six categories into the following three:

  • Correspondence
  • Retail communications
  • Institutional communications

As with the old rule, the new rule requires that all communications, whether retail, institutional, or correspondence, should be based on principles of fair dealing – and they must all be supervised.

This month’s article, “Best Practices – Supervision of Communications,” is an excerpt from FIRE Solutions’ Firm Element CE course, Supervision of Communications. The article is an overview of best practices to help firms comply with the supervisory requirements of Rule 2210.

These best practices include: Identifying required disclosures, requiring attestations, and supervisory activities related to electronic communications and social networking.


About the Course

Supervision of Communications is an intermediate level course designed for supervisors and compliance personnel, and/or any securities principal responsible for review and approval of communications.

The course provides an overview of FINRA Rule 2210, including the different categories of communications, the review and approval requirements of each, and the record-keeping requirements. The content standards that apply to communications with the public are discussed, as well as some best practices firms may employ. The course wraps up with some examples of recent disciplinary actions that were the result of violations of FINRA’s communications rules.

Highlights of the course include:

Categories of Communications

  • A look at the three categories of communications with the public as defined by FINRA Rule 2210
  • Internal communications
  • The review and approval process for each category
  • The record-keeping requirements of communications

Content Standards, Best Practices, and Regulatory Actions

  • Key items to look for when reviewing communications
  • Conflicts of interest to avoid when making recommendations through communications
  • Some “best practices” to follow
  • A review of some recent regulatory actions against firms and individuals

FIRE Solutions also offers the following courses related to communications, and all updated with the FINRA Rule 2210 revisions:

  • Communications – Use and Supervision of Social Networking Sites and Blogs
  • Communications with the Public
  • Electronic Communications
  • Email Etiquette
  • Soliciting New Accounts