technology

A CLASS ACTION SETTLEMENT OF $2 BILLION ON FOREIGN EXCHANGE SPOT AND FUTURES TRANSACTIONS OFFERS TO TURN OLD PAPER OR ELECTRONIC STATEMENTS INTO COLD, HARD CASH!

A CLASS ACTION SETTLEMENT OF $2 BILLION ON FOREIGN EXCHANGE SPOT AND FUTURES TRANSACTIONS OFFERS TO TURN OLD PAPER OR ELECTRONIC STATEMENTS INTO COLD, HARD CASH!

Is there buried treasure in your old daily or monthly statements?

WHO: People who traded, foreign exchange (FX) spot, futures and/or options on futures on foreign exchange.

WHY: Settling Defendants have agreed to pay in excess of $2 Billion.

WHAT: On foreign exchange, directly (spot) or on a futures exchange like the Chicago Mercantile Exchange (“CME”).

WHEN (Part 1): Eligible trades took place between January 1, 2003 through December 15, 2015.

WHEN (Part 2): The deadline to file a proof of claim is March 22, 2018.

WITH: Bank of America, Barclays, BNP Paribas, Citigroup, Deutsche Bank, AG, Goldman Sachs, HSBC, Morgan Stanley, RBC and UBS among others.

WHERE: Forms can be obtained at www.fxantitrustsettlement.com or by calling 1-888-582-2289.

HOW:  You may be eligible to make a claim without your actual trading records.

SEC’s National Examination Priorities for 2018

According to Office of Compliance Inspections and Examinations (“OCIE”)

The U.S. Securities and Exchange Commission (“SEC”) regulates approximately 4,000 broker-dealers and more than 12,000 registered investment advisers (“RIAs”) with nearly 66.8 trillion dollars of assets under management. These are the 2018 priorities the SEC recently expressed.

1. Seniors, Retail Investors and Those Saving for Retirement

OCIE will focus on “main street” investors by examining the calculation of fees and expenses, the disclosure of same, as well as the growth of cryptocurrencies, like Bitcoin, and initial coin offerings (“ICO”).

2. Compliance and Risks to Vital Market Infrastructure

The SEC plans to examine those entities vital to properly functioning capital markets. These include transfer agents, clearing agencies and securities exchanges as well as their operations and compliance responsibilities.

3. Cybersecurity 

Generally, cybersecurity refers to unauthorized internal and external access to client accounts, trading systems, wrongful asset transfers and data loss. The SEC will continue its initiative to examine access rights and controls, prevention of data loss, incident responses as well as including testing of cybersecurity plans.

4. Anti-Money Laundering (“AML”)

Examiners will delve into the sufficiency of AML programs, whether they are being followed and whether they address other regulatory obligations, i.e., filing a Suspicious Activity Report (“SAR”). 

5. Self-Regulatory Organizations (“SRO”)

The SEC regulates the following SROs: 1) Financial Industry Regulatory Authority (“FINRA”); and 2) Municipal Securities Rulemaking Board (“MSRB”). The SEC will evaluate their effectiveness of internal policies and procedures, controls and select operations.

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FINRA’S 2017 EXAMINATION PRIORITIES

The Financial Industry National Regulatory Authority’s (“FINRA”) annual examination letter is out and filled with informative nuggets. Fear not; the breakdown that you need to know is contained below.

  1. High-Risk Firms and Brokers
    • FINRA will focus on “outside business” activities of representatives and private securities transactions for “selling away” activity;
    • FINRA will examine heightened supervisory procedures under FINRA Rule 3110; and
    • FINRA will focus on speculative or complex products sold to investors who do not have the necessary experience or sophistication to evaluate the same.
  2. Fraud – Long an area of emphasis for FINRA, this comes in many forms. Examples include “pump and dump” of microcap securities, Ponzi schemes and insider trading. FINRA will also make regulatory referrals for individuals outside its jurisdiction.
  3. Initial Coin Offerings and Cryptocurrencies Digital assets like cryptocurrencies, i.e., Bitcoin and initial coin offerings (“ICOs”) maybe securities or involve the offer or sale of securities, which would trigger FINRA rules.  For example, if a fund to trade Bitcoin is created with a manager, an investment in the fund likely involves an “investment contract” which is a security.
  4. Technology Governance and Cybersecurity FINRA will examine the implementation of new systems and modifications or enhancements to existing vendor or proprietary systems. FINRA is focused on protection of personally identifiable information from external and internal threats. Finally, FINRA says that a broker-dealer’s procedures should assess when a cybersecurity event necessitates filing a Suspicious Activity Report (“SAR”).
  5. Suitability and Concentration FINRA will closely examine situations where representatives recommend complex products to vulnerable or unsophisticated investors. FINRA is also interested in rollover recommendations as well as Unit Investment Trusts (“UITs”) and multi-share class products.
  6. Business Continuity Planning – Due to recent hurricanes, this is fresh on FINRA’s radar. FINRA Rule 4370 requires firms to have written Business Continuity Plans (“BCPs”) in place to address what happens during emergency disruptions.
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FINRA IS AGAIN SEEKING TO MAKE EXPUNGMENT EVEN HARDER!!!

Of course, expungement means removing allegations made by customers and others from the Central Registration Depository (“CRD”), which would thereby remove it from FINRA’s Broker Check (“Broker Check”). Again, most of the data on the CRD comes from Forms U-4 and U-5.

Although FINRA Notice to Members (“NTM”) 17-42 is disguised as seeking comment, it is not hard to see where FINRA is going. In 2008, FINRA adopted Rule 12805 to require that arbitrators conduct additional fact-finding before they could order expungement. In 2013, FINRA believed that too many expungements were being granted.  They, therefore, came out with guidance seeking to discourage arbitrators from granting expungement.

The current standard applicable in FINRA Arbitration is contained in FINRA Rule 2080. This rule states that expungement should only be granted when the allegation or claim is factually impossible, clearly erroneous, and false or if the associated person (“AP”) was “not involved in the alleged investment-related sales practice.” Currently, a majority of the arbitrators can vote to expunge material, and an AP named in a customer arbitration need not seek expungement right away.

Below are the proposed changes sought by FINRA:

  • Prohibit APs from seeking expungement in a court of law;
  • Increase the expungement arbitration filing fee up to $1,425 minimum;
  • Add a higher standard, i.e., that the disputed info must also have “no investor protection or regulatory value” and require a written explanation;
  • Make arbitrator votes for expungement unanimous;
  • Limit the opportunity of APs named in customer arbitration to seek expungement during the hearing of the underlying dispute and not afterwards;
  • No longer allowing the AP seeking expungement to appear by phone, but either show up in person or by video conference. Strangely, customers who filed an arbitration could appear by telephone during an expungement hearing;
  • Only give APs who are named in a customer complaint that does not develop into an arbitration 1 year to seek expungement. APs who cases are settled would only have 1 year to seek expungement from the date FINRA closes the case; and
  • Expungements sought after the dispute to be decided under the industry arbitration code and require APs to name their former firm as a respondent in such arbitrations.

THE TOP 4 THINGS LEARNED FROM FINRA’s INTITIAL EXAM FINDINGS REPORT

These are the highlights and selected observations from FINRA’s all exams conducted in 2017.

The Top 4 Issues Highlighted from FINRA’s Report

  • Cybersecurity

This area continues to evolve. The underlying basis for this requirement is Regulation S-P. The most common problems cited were phishing, “spear phishing,” ransomware and fraudulent third-party wires.  “Spear phishing” differs from regular “phishing” in that it targets an individual or set of individuals apparently known by the attacker.

  • Suitability

The most problematic products cited in the report were multi-share class and complex products, unit investment trusts (“UITs”) and inverse exchange traded funds (“ETFs”).  Particular problems were early rollovers and exchanges of UITs and failure to have a reasonable basis for recommending a particular share class

  • Anti-Money Laundering (“AML”);

A canned set of AML procedures is unlikely to cut it with FINRA. Rather, the AML procedures should be tailored to the firm’s specific business model.  This should at minimum cover: (i) trading; (ii) the flow of funds; and (iii) customer identification information. Finally, is the broker-dealer in compliance with FINRA Rule 3310 (c) independent testing of AML monitoring?

  • Best Execution of Trades

Are the “best execution” reviews, adequate, rigorous and regular? Likewise, are they documented? This goes beyond stocks to cover fixed income and equity options too.  This requirement applies to orders that are executed, handled received and routed by the broker-dealer. This best execution review, under FINRA Rule 5310, must be done at least quarterly. The review should look at different order type’s likelihood of execution, speed thereof and price improvement.

SEC’s National Examination Priorities

SEC’s National Examination Priorities for 2017

According to Office of Compliance Inspections and Examinations (“OCIE”)

The U.S. Securities and Exchange Commission (“SEC”) regulates more than 4,000 broker-dealers and more than 12,000 registered investment advisers (“RIAs”) with nearly 67 trillion dollars of assets under management. These are the priorities the SEC recently expressed.

  1. Elderly and Retiring Investors

The SEC will assess how firms interact with seniors, including their ability to detect the financial exploitation of seniors.  Exams will focus on supervisory programs and rules related to services and products directed at senior investors.

  1. Electronically Distributed Investment Advice a/k/a Robo Advisers

For advisers that provide electronic advice, the SEC will review disclosure of conflicts, marketing, compliance programs, data protection and the manner of how investment recommendations/algorithms are formulated.

Generally, cybersecurity refers to unauthorized internal and external access to client accounts, trading systems, wrongful asset transfers and data loss. The SEC will continue its initiative to examine controls, compliance procedures, including testing of cybersecurity plans.

  1. Bad Apple Brokers and Their Employers

The SEC says that they will use data analytics to examine individuals with a history of misconduct and examine the firms that now employ them.  For instance, if someone was banned from acting as a registered representative and now seeks to be become registered as an investment adviser representative (“IAR”) that could trigger an examination of the new RIA.

  1. Never Been Examined Advisers

This program begun in 2014 will continue, but it will be updated to add a component focusing on a risk based review. The need for this program exists because the SEC only examines approximately ten percent (10%) or so of the RIAs it regulates every year.

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THE SKINNY ON CHICAGO’S PAID SICK LEAVE ORDINANCE

While you were likely out on vacation or enjoying a neighborhood festival, the City of Chicago’s Paid Sick Leave Ordinance went into effect.

WHAT: The ordinance set the minimum standards for paid sick leave. Employees must work at least eighty (80) hours within any one hundred twenty (120) day period, and if they do, sick days can be used after one hundred eighty (180) days of employment.

WHO (Part 1): Employers who employ four (4) or more employees.

WHO (Part 2):  Commission based employees are covered at the greater of their base rate or the minimum prevailing wage.

WHO (Part 3):  The ordinance is subject to certain exclusions. An example of the same is outside salespeople.

WHEN (Part 1): After July 1, 2017.

WHEN (Part 2):  An employee can use a minimum of forty (40) hours paid sick leave per year.

WHEN (Part 3):  Upon termination or resignation, the employer need not pay unused sick days to the former employee.

HERE: Only employee hours worked within the city limits count towards accrual.

ACCRUAL VS. GRANT: Frontloading, i.e., an immediate grant prevents accrual and carryover. Accrual is different for employers, is subject to the Family Medical Leave Act (“FMLA”). Non-FMLA covered employees are granted forty (40) hours no later than working one hundred eighty (180) days for the employer.

CARRYOVER: If the employer is subject to FMLA, then forty (40) hours can be carried over to the next benefit year, otherwise an employee can carry over twenty (20) hours.

USAGE: A covered employee may use a maximum forty (40) hours of accrued sick leave during a year.

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FINRA’S 2017 EXAMINATION PRIORITIES

The Financial Industry National Regulatory Authority’s (”FINRA’s”) annual examination letter is out and filled with nuggets. Fear not; the breakdown that that you need is contained below.

New this year is FINRA’s off-site electronic review. This is for firms that are not scheduled for cycle exams in 2017.

  • High Risk and Recidivist Brokers
  1. FINRA has created a “bad boy” dedicated unit to look into these registered reps;
  2. FINRA will examine supervisory procedures, including verification of national search for reasonably available public records to verify Form U-4 information;
  • FINRA will use criteria to detect and prevent future misconduct by so-called “bad boys;” and
  1. FINRA will look for concentration and is concerned with branch and non-branch locations and red flags like change of address or investment objectives by customers of “bad boys.”
  • Senior Investors – FINRA will review controls to protect seniors from improper advice and fraud. It is also concerned with speculation, concerned with senior exploitation by non-licensed personnel and complex products bought in the search for yield.
  • Social Media – FINRA will check for compliance with supervisory and record retention for social media and electronic communication ensuring that broker-dealers capture in the “written once, opened many” or WORM format.
  • Cybersecurity – According to FINRA, adequate cyber security provisions depend upon business model, size and risk profile of the member firm. FINRA will look for lack of proper encryption of data, improper use of portable devices, improper storage of passwords, lack of physical security and deficiency of virus protection and software patches.
  • Suitability and Concentration – Do registered representatives understand the products’ features that they have sold? Is there a concentration in specific investments or sectors in customer accounts?
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IS THERE “GOLD” IN YOUR OLD DAILY OR MONTHLY STATEMENTS?

Class Action Settlement on Alleged Manipulation Offers to turn old paper or electronic statements into cold, hard cash!

WHO: People who traded futures and/or options on futures on . . . . .

WHAT: On Yen-LIBOR and EuroYen – TIBOR Contracts.

WHEN: Between January 1, 2016 thru June 30, 2011.

WITH: R.P. Martin, Citigroup, Inc., Citigroup, NA and Citibank Japan, Ltd. and HSBC.

WHERE (Part 2): Forms can be obtained at www.euroyensettlement.com or by calling 1-866-217-4453

WHY: The number of Claimants who file Proof of Claim forms varies, if less than all members of the Class file, then you could get more money.

WHEN (Part 2): The deadline to file a proof of claim is January 24, 2017.

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SEC’s National Examination Priorities for 2016

According to Office of Compliance Inspections and Examinations.

 

  1. Protecting Retail Investors and Investors Saving for Retirement.

The Securities and Exchange Commission (“SEC”) will continue to focus on whether there is a reasonable basis made for recommendations to investors, supervision and compliance controls, conflicts of interest disclosure and marketing to the groups mentioned above.

 

  1. Fee Selection and Reverse Churning.

This refers to looking at investment advisers, investment adviser representatives and dually registered broker-dealers and RIAs that offer a variety of fee arrangements to make sure that the recommendation of account types at the beginning of the relationship and in the future serves the best  interest of the investor when looking at fees charged, services provided and disclosures made. Reverse churning is the situation where an account suffers from a dearth of activity, but the account pays a fixed fee.

 

  • Cybersecurity

The SEC will be following up on its second initiative examining RIAs and BDs cybersecurity controls and compliance.  This will be refined to examine testing and assessment of controls and procedures.  Generally, cybersecurity refers to unauthorized internal and external access to client accounts, trading systems, wrongful asset transfers and data loss.

  1. Bad Apple Brokers

The SEC says that they will use data analytics to examine individuals with a history of misconduct and examine the firms that now employ them.  For instance, if someone was banned from acting as a registered representative and now seeks to be become registered as an investment adviser representative (“IAR”) that could trigger an examination of the new registered investment advisor (“RIA”).

 

  1. Anti-Money Laundering

The SEC will continue to examine the AML procedures of both introducing and clearing broker-dealers. The will compare the number of suspicious activity reports (“SARs”), those that are late or incomplete with those that would be consistent with the firm’s stated business models. This will also to see if the testing of independent obligation when contrasted with each firm’s business model and to see whether programs adapt, when appropriate to current terrorist financing risks and current money laundering risks.

 

 

 

  1. Private Placements

The SEC will examine Regulation D offerings, including those involving “crowdfunding” as well as the Immigrant Investor Program (EB-5).  This latter provides a path to citizenship for foreign investors who make a qualifying investment into a business in the United States that creates or preserves at least ten (10) permanent full time jobs for a qualified U.S. worker. The SEC will review whether the offerings meet the legal requirements as to disclosure, due diligence and suitability.