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securities
FINRA ISSUES GUIDANCE ON COOPERATION BY BROKER DEALERS AND BROKERAGE FIRMS DURING REGULATORY INVESTIGATIONS

FINRA recently issued Regulatory Notice 19-23 addressing “extraordinary cooperation” by broker dealers and broker dealer firms.  The Notice highlights FINRA’s hopes to incentivize broker dealers and broker dealer firms to take “proactive and voluntary steps beyond those required under FINRA rules” by crediting such cooperation in FINRA’s regulatory enforcement decisions. The Notice also clarifies the difference between “required cooperation” and “extraordinary cooperation” by broker dealer and broker dealer

securities
SEC ADOPTS RULES AND INTERPRETATIONS REGARDING BROKER DEALER AND INVESTMENT ADVISER STANDARDS OF CONDUCT
On June 5, 2019, the SEC voted to adopt a package of rulemakings and interpretations regarding broker dealers’ and investment advisers’ standards of conduct, including new Regulation Best Interest, new Form CRS Relationship Summary, and two interpretations under the Investment Advisers Act of 1940.




securities
FINRA REQUESTS COMMENT ON PROPOSED RULE 4111 IMPOSING ADDITIONAL OBLIGATIONS ON FIRMS WITH A SIGNIFICANT HISTORY OF MISCONDUCT
FINRA is requesting comment on proposed Rule 4111 (Restricted Firm Obligations) that would impose obligations, including financial requirements, on designated member firms that cross specified numeric disclosure-event thresholds. FINRA believes that the proposal would promote investor protection and market integrity and provide another tool to incentivize broker dealers to comply with regulatory requirements and to pay arbitration awards.
securities
FINRA EXTENDS DEADLINE FOR BROKER DEALERS TO SELF REPORT 529 SAVINGS PLAN VIOLATIONS AS PART OF NEW INITIATIVE
FINRA recently announced a self-reporting initiative to promptly compensate harmed investors and promote firms’ compliance with the rules governing the recommendation of 529 savings plans.  529 plans are tax-advantaged plans that are designed to encourage saving for the future educational expenses of a designated beneficiary, and shares are commonly sold in different classes, with fees and expenses that vary widely from plan to plan.
securities
HIGHLIGHTS FROM THE FINRA 2019 RISK MONITORING AND EXAMINATION PRIORITIES LETTER

FINRA released its 2019 Risk Monitoring and Examination Priorities Letter.  Compared to previous years, this Letter takes a novel approach by highlighting those topics that will be materially new areas of focus for FINRA’s risk monitoring and examination programs this year.  The Letter also identifies areas of ongoing concern that FINRA will continue to review.





securities
FINRA APPROVES FILING WITH THE SEC RULES PROHIBITING COMPENSATED NON ATTORNEY REPRESENTATIVES FROM PRACTICING IN FINRA ARBITRATION AND MEDIATION
FINRA currently allows non-attorney representatives to work with investors filing securities arbitration claims and throughout mediation.  FINRA’s Board of Governors recently approved filing with the SEC amendments to the Codes of Arbitration and Mediation Procedure which would prohibit non-attorney representatives from practicing in the arbitration and mediation forums. 




securities
FINRA PUBLISHES SECOND ANNUAL REPORT ON EXAMINATION FINDINGS
FINRA published its 2018 Report on Examination Findings, its second annual report detailing observations from recent examinations of broker-dealer firms that it considers worth highlighting because of their potential significance, frequency, and impact on investors and the markets.  It also describes practices FINRA has observed to be effective in certain circumstances. 




securities
SEC’S OWN INVESTOR ADVISORY COMMITTEE RECOMMENDS SEC CLARIFY PROPOSED REGULATION BEST INTEREST
On April 18, 2018, the SEC proposed a new rule under the Securities Exchange Act of 1934 entitled “Regulation Best Interest” to establish a standard of conduct for broker-dealers and natural persons who are associated persons of a broker-dealer to act in the best interest of a retail customer when making a recommendation of any securities transaction or investment strategy involving securities to the retail customer.




securities
FINRA ESTABLISHES A PER ARBITRATOR FEE AND HONORARIUM FOR LATE CANCELLATION OF PREHEARING CONFERENCES
The SEC approved amendments to FINRA’s customer and industry arbitration rules to charge parties who request cancellation of a prehearing conference within three business days of the prehearing conference a $100 per-arbitrator fee. The amendment also provides for a $100 honorarium to each arbitrator scheduled to attend the cancelled prehearing conference.
securities
THE SEC APPROVES FINRA RULES AMENDMENTS FOR SIMPLIFIED ARBITRATIONS
The SEC recently approved a rule amendment to create an intermediate form of adjudication for small claims.  The proposal amends Rules 12600 and 12800 of the FINRA Code of Arbitration Procedure for Customer Disputes and Rules 13600 and 13800 of the FINRA Code of Arbitration Procedure for Industry Disputes.  The amendments provide parties with claims of $50,000.00 or less an opportunity to argue their cases before a single arbitrator in a shorter, more limited telephonic hearing format.




securities
FINRA SEEKS COMMENT ON PROPOSED AMENDMENTS TO FIRM AND ASSOCIATED PERSONS DOCUMENT PRODUCTION LIST
FINRA is requesting comment on proposed amendments to the Firm and Associated Persons Document Production List and Discovery Guide. The proposed amendments to the Discovery Guide require firms and associated persons, upon request, to produce documents concerning third-party insurance coverage in a customer arbitration proceeding. These proposed amendments would strictly limit the circumstances under which insurance coverage information could be presented to the arbitrators.
securities
FINRA ANNOUNCES INITIATIVE TO TRANSFORM REGISTRATION SYSTEMS THAT WILL LEAD TO ENHANCED EFFICIENCIES AND REDUCED COMPLIANCE COSTS FOR FIRMS
On June 14, 2018, FINRA announced details of a multi-phased effort to overhaul its registration and disclosure programs, including the Central Registration Depository (CRD). FINRA operates the CRD for the U.S. securities industry and its regulators and it provides the backbone of BrokerCheck.
securities
ENHANCEMENTS TO FINRA’S DISCLOSURE REVIEW VERIFICATION PROCESS PERMITS FIRMS TO RELY ON PROCESS FOR COMPLIANCE WITH PUBLIC FINANCIAL RECORDS SEARCHES OF APPLICANTS AND REGISTERED PERSONS
Beginning on July 9, 2018, FINRA is enhancing its disclosure review process to enable it to conduct a public records search of information relating to bankruptcies, judgments and liens, within fifteen calendar days from the date of an applicant’s Form U4. These enhancements will allow FINRA to verify the accuracy and completeness of an applicants’ information relating to all bankruptcies, judgments and liens reported to the Central Registration Depository (CRD) system through the Form U4.
securities
FINRA REVISES THE SANCTION GUIDELINES
FINRA revised its Sanction Guidelines to instruct adjudicators in the disciplinary process to consider customer-initiated arbitrations that result in adverse arbitration awards or settlements when assessing sanctions. As a result, when a Respondent’s disciplinary history, and history of arbitration awards and arbitration settlements, together with the violation found in a disciplinary case, form a pattern, the new Sanction Guidelines will advise that adjudicators should consider imposing more stringent sanctions.




securities
U.S. APPEALS COURT VACATES OBAMA ERA ‘FIDUCIARY RULE’ REQUIRING FINANCIAL ADVISORS TO ACT IN CUSTOMERS’ BEST INTEREST
On March 15, 2018, the 5th U.S. Circuit Court of Appeals in New Orleans voided the U.S. Department of Labor’s “fiduciary rule” adopted by the Obama administration in 2016 as a means to limit and reduce conflicts of interest among financial advisors providing retirement planning advice. The majority found in the case, Chamber of Commerce of the United States of America v. U.S. Department of Labor, 17-10238, that the Department of Labor overstepped its authority and that the Obama-era rule’s redefinition of “fiduciary” was unreasonable.




securities
FINRA SEEKS COMMENT ON PROPOSED NEW RULE GOVERNING OUTSIDE BUSINESS ACTIVITIES AND PRIVATE SECURITIES TRANSACTIONS

FINRA launched a retrospective review of its outside business activities and private securities transactions rules in May of 2017 to assess their effectiveness and efficiency. This request for comment stems from that review of FINRA Rule 3270 (Outside Business Activities of Registered Persons) and FINRA Rule 3280 (Private Securities Transactions of an Associated Person). The proposed rule would replace FINRA Rules 3270 and 3280 and is intended to reduce unnecessary burdens, while strengthening investor protections relating to outside activities.





securities
FINRA ARBITRATION 2017 STATISTICS

Arbitration case filings through December 2017 reflected a 6 percent decrease compared to cases filed in 2016 during the same time frame.  More specifically, 3,681 cases were filed in 2016, but 3,456 cases were filed in 2017.  Of the 3,456 cases filed, 65 percent or 2,260 were customer disputes and 35 percent or 1,196 were intra-industry disputes. 

securities
HIGHLIGHTS FROM THE FINRA 2018 REGULATORY AND EXAMINATION PRIORITIES LETTER

FINRA released its annual list of Regulatory and Examination Priorities for 2018.  FINRA will continue its focus on high-risk and recidivist brokers in terms of rulemaking initiatives and examinations. This year’s priority includes strengthening the current operation, while becoming more efficient. 

securities
ARBITRATION PANEL GRANTS EXPUNGEMENT IN RECENT CASE

Our firm recently obtained an award from a FINRA panel granting a Motion for Expungement.  The claim (Arbitration number 16-01770) was filed in June, 2016 and alleged negligence, breach of fiduciary duty, negligent supervision, and breach of contract.  The claims were related to charges Claimant suffered when he surrendered a fixed annuity and losses he incurred in various types of moderately aggressive investments.




securities
FINRA SEEKS COMMENT ON THE EFFICACY OF ALLOWING COMPENSATED NON ATTORNEYS TO REPRESENT PARTIES IN ARBITRATION

The FINRA Codes of Arbitration and Mediation Procedure currently allow compensated non-attorney representatives (“NAR”) to represent clients in securities arbitration and mediation subject to some exceptions.  Some parties are represented by relatives or friends who assist with case preparation or presentation.  NAR firms typically provide public investors an alternative to representation by attorneys in disputes between investors and broker dealers. FINRA is conducting a review of the efficacy of continuing to allow such representation and is accepting comments from memb

securities
THE ALABAMA SUPREME COURT CONFIRMS DISCOVERY MUST BE LIMITED IN STATE COURT WHILE A MOTION TO COMPEL ARBITRATION IS PENDING

In Ex parte Locklear Chrysler Jeep Dodge, LLC and Locklear Automotive Group, Inc., the Alabama Supreme Court granted a Petition for Writ of Mandamus (“Petition”), finding that the trial court exceeded its discretion when it granted a Motion to Compel discovery on issues unrelated to arbitration while a Motion to Compel arbitration was presently pending.




securities
OCTOBER IS FINRA MEDIATION SETTLEMENT MONTH

Every October, FINRA’s Office of Dispute Resolution significantly reduces mediation prices in order to encourage mediation and settlement of customer and industry disputes.  The goal of Settlement Month is to encourage parties to experience the benefits of mediation for the first time and to reinforce its value and effectiveness for those who have been through the mediation process already.




securities
THE DEPARTMENT OF LABOR SEEKS AN 18 MONTH DELAY ON THE FIDUCIARY RULE’S EXEMPTIONS

The Department of Labor (“DOL”) recently submitted a proposal to delay implementation of the remaining parts of its fiduciary rule from January 1, 2018 until July 1, 2019.  Two provisions of the rule, which greatly expands the definition of who counts as a fiduciary under the Employee Retirement Income Security Act and the Internal Revenue Code, took effect on June 9, 2017.  One remaining provision includes the best interest contract exemption, which allows brokers to charge variable compensation for products as long as they sign a legally binding agreement to put their c

securities
SEC APPROVES FINRA’S PROPOSED RULE CHANGE TO EXPEDITE THE ARBITRATOR LIST SELECTION

The SEC approved a proposed rule change to amend FINRA Rules 12402 and 12403 of the Customer Code and Rule 13403 of the Industry Code to allow the Director of FINRA’s Office of Dispute Resolution (“Director”) to send the list generated by the Neutral List Selection System to all parties at the same time, within 30 days after the last answer is due.  The list will now be sent within this time, regardless of whether the parties agree to extend any answer due date.


securities
ARBITRATION PANEL GRANTS ELIGIBILITY MOTION TO DISMISS AND EXPUNGEMENT IN RECENT CASE

Our firm recently obtained an award from a FINRA panel denying all of Claimant’s claims and finding for Respondents.  The panel also granted our Motion for Expungement.  The claim (Arbitration number 16-03568) was filed in December, 2016.  Claimant alleged claims of breach of fiduciary duty, breach of contract, failure to supervise, violation of the Alabama Securities Act, violation of securities regulatory rules, ongoing fraud, and common law claims of misrepresentation, unjust enrichment and negligence.  The claims were related to Claimant’s purchase of prefe

securities
FINRA REVIEWS RULES ON OUTSIDE BUSINESS ACTIVITIES AND PRIVATE SECURITIES TRANSACTIONS

In Regulatory Notice 17-20, FINRA announced it is requesting comments on Rules 3270 and 3280 governing outside business activities and private securities transactions.  The request for comments comes as a result of FINRA’s new retrospective rule review.  The review concentrates on rules governing broker dealer employees’ business and securities activities carried out away from their firm—activities that are outside the regular course of scope of their employment with the firm.




securities
FINRA ARBITRATION 2016 STATISTICS

Arbitration case filings for year-end 2016 reflected a 7 percent increase compared to cases filed in 2015 during the same time frame.  More specifically, 3,435 cases were filed in 2015, but 3,681 cases were filed in 2016.  Of the 3,681 cases filed, 68 percent or 2,519 were customer disputes and 32 percent or 1,162 were intra-industry disputes. 




securities
THE ELEVENTH CIRCUIT HOLDS THAT THE SAFE HARBOR PROVISION IS AVAILABLE TO DEFENDANTS IN SEC ENFORCEMENT ACTIONS

In SEC v. Levin, the United States Court of Appeals for the Eleventh Circuit (“Eleventh Circuit”) held that the safe harbor provision of Regulation D’s Rule 508(a) is available to a defendant in a Securities and Exchange Commission (“SEC”) enforcement action based on a failure to register securities under Section 5 of the Securities Act.




securities
HIGHLIGHTS FROM THE FINRA 2017 REGULATORY AND EXAMINATION PRIORITIES LETTER
FINRA released its Regulatory and Examination Priorities Letter for 2017.  The letter provides information about areas FINRA plans to review in its 2017 exams based on observations from their regulatory programs, as well as input from various stakeholders, including broker dealers, other regulators and investor advocates.
securities
RECENT CASE INVOLVING ALTERNATIVE INVESTMENTS RECEIVES AWARD FOR RESPONDENT
Our firm recently obtained an award from a FINRA panel denying all of Claimant’s claims and finding for Respondents.  The claim (Arbitration number 16-01352) was filed in May, 2016.  Claimant alleged claims of unsuitability, breach of fiduciary duty, breach of contract, failure to supervise, violation of the Alabama Securities Act, violation of securities regulatory rules, and common law claims of misrepresentation, unjust enrichment and negligence.
securities
FINRA’S RECOMMENDATIONS FOR EXPEDITED ARBITRATIONS

 FINRA allows for expedited arbitration proceedings in cases involving senior and seriously ill parties.  While there is no specific rule within the Code of Arbitration Procedure, once FINRA determines that a matter involves an elderly or ill party, the case is flagged as an expedited case.  FINRA then endeavors to complete the arbitration process as quickly as possible.  FINRA recently formed a committee to determine how to process expedited cases more efficiently.  

securities
FORUM SELECTION PROVISIONS IN CUSTOMER AGREEMENTS

FINRA released Regulatory Notice 16-25 reminding broker dealers that claimants have a right to request arbitration through FINRA at any time and do not forfeit that right by signing any agreement with a forum selection provision specifying another dispute resolution process or an arbitration venue other than the FINRA arbitration forum.   

securities
RECENT RULEMAKING ITEMS APPROVED BY FINRA

FINRA recently authorized filing with the SEC two proposed amendments to rules from the Code of Arbitration Procedure for Customer Disputes and Industry Disputes.  The rules affect chairperson eligibility in arbitration and the arbitrator panel selection process.

securities
FINRA ISSUES GUIDANCE ON USE OF STOP ORDERS DURING VOLATILE MARKET CONDITIONS

FINRA issued Regulatory Notice 16-19 in an effort to encourage firms to review their practices regarding stop orders.  Registered representatives often recommend stop orders as a tool for managing market risk.  Investors use stop sell orders to protect profit position in the event a stock’s price declines and stop buy orders if they have a short position to limit losses in the event a stock’s price increases.  Once stop orders are triggered, they become market orders, which are inherently risky, especially in volatile market conditions.  

securities
SEC APPROVES RULE REQUIRING FIRMS TO SEND AN EDUCATIONAL PAMPHLET TO THE FORMER CLIENTS OF THEIR NEWLY HIRED REPRESENTATIVES

The SEC recently approved the adoption of FINRA Rule 2273 which creates an obligation to deliver educational communication in connection with firm recruitment practices and account transfers.  The new rule affects financial firms that want to recruit the former clients of newly hired representatives.

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