SEC Has Begun Its Spring Cleaning and Is Full SiteCrelano@mahadvising.com
In the most recent round of SEC Regulation Best Interest exams, the SEC is looking beyond good faith efforts by advisers. Though they acknowledge that there is still much to learn and educate about this complex requirement, they still plan on ramping up on examinations. Deficit letters can be used as a starting point to provoke more aggressive action, and they aren’t necessarily enforcement letters. This is why SEC enforcement defense is so important from exams to when a wells notice is issued.
During this phase of Reg BI exams, the SEC is likely to focus on complex products. And what are these complex products? These are derivatives, variable annuities, penny stocks, investments tied to volatility, and asset-backed securities are examples of leveraged or inverse exchange products. Obviously, the SEC does not define complex products, but they state they are looking at how well representatives can explain them to customers and whether there are additional costs associated with them.
Is it possible to get a sense of what potential enforcement letters look like? In light of the fact that this is a similar concept to FINRA, we can learn a lot from them. Policy, procedures, and systems will be an example area of focus. FINRA enforcement defense will be critical to surviving the heat. The SEC will be empowered to bring about enforcement only if deficient supervisory systems were to be identified – whether or not they made any unsuitable recommendations at the time. In addition to care obligations, Reg BI might also include enforcement letters because this element appears to be based on FINRA’s suitability rule.
Thus, in what sense does this matter to you? Now that the spring cleaning is headed your way, are you prepared? With a properly functioning supervisory system, you don’t need a hall pass. Not at all! Reg BI says that this will be a violation, so what’s your supervision like? Do you comply with the law? Good faith efforts have been made. An open season has been declared by the SEC.
Give us a call today and let’s get started for SEC enforcement defense and FINRA Enforcement Defense.