Upcoming Regulatory Changes Monday, May 21 1:45 p.m. 2:45 p.m.

Transcription

1 Upcoming Regulatory Changes Monday, May 21 1:45 p.m. 2:45 p.m. During this session, panelists preview and discuss upcoming rule changes, proposals and other regulatory initiatives. Moderator: Philip Shaikun Vice President and Associate General Counsel FINRA Office of General Counsel Panelists: Meredith Cordisco Associate General Counsel FINRA Office of General Counsel Robert Hamman President and Chief Compliance Officer First Asset Financial, Inc. Kevin Miller Executive Vice President and General Counsel Securities America, Inc Financial Industry Regulatory Authority, Inc. All rights reserved. 1

2 Upcoming Regulatory Changes Panelist Bios: Moderator: Philip Shaikun is Vice President and Associate General Counsel in FINRA s Office of General Counsel, where he is responsible for developing and interpreting FINRA rules and providing legal and policy advice to FINRA management and staff. Mr. Shaikun s responsibilities involve a variety of regulatory areas, including research analyst conflicts, broker compensation practices, communications with the public, supervision, registration, and sales and trading practices. Mr. Shaikun also leads the Office of General Counsel s role in the retrospective review of FINRA rules. Mr. Shaikun previously served as an attorney in FINRA s (then NASD) Enforcement Department. Prior to joining FINRA, Mr. Shaikun was as a trial attorney with the U.S. Department of Justice, where he prosecuted civil fraud cases. Mr. Shaikun graduated with a bachelor s degree from Duke University, where he also has served as a visiting lecturer in public policy. He received a law degree from the University of Southern California. Mr. Shaikun is also a former reporter for the St. Petersburg Times in Florida. Panelists: Meredith Cordisco is Associate General Counsel with FINRA s Office of General Counsel. In this capacity, she provides legal guidance on policy initiatives, rule changes and interpretations in various areas, including regarding new issues and spinning, private securities transactions and outside business activities. Before joining FINRA, Ms. Cordisco was counsel in the Securities Litigation and Enforcement group at WilmerHale, where she focused her practice on complex securities enforcement investigations. Ms. Cordisco received her B.S., summa cum laude, in International Business and French from Mount St. Mary s University in Emmitsburg, Maryland, and her J.D., summa cum laude, and M.B.A., cum laude, from Villanova University. Following her studies, Ms. Cordisco clerked for the Honorable Eduardo C. Robreno on the U.S. District Court for the Eastern District of Pennsylvania. Robert Bob Hamman entered the investment profession in 1976 and is serving as President and CCO for First Asset Financial Inc. and two RIAs. Currently Mr. Hamman is serving a three year term on the Small Firm Advisory Committee (SFAC) representing 14 states. The SFAC reviews and comments on all new and amended FINRA rule proposals, and provides guidance to FINRA staff regarding the potential impact of proposed regulatory initiatives on FINRA's small firms, hopefully preventing unintended consequences for small firms. Mr. Hamman has also served on the Regulatory Advisory Committee (RAC) and was elected to the FINRA District Committee (Kansas City) in 2013 for a term ending in Mr. Hamman has a Bachelor s and Master s Degree from Emporia State University and currently sits on their Foundation Board of Trustees. Kevin J. Miller, Executive Vice President and General Counsel, joined Securities America in 2000 and brings more than 27 years of legal and compliance experience to the firm. As General Counsel, he manages the firm s litigation and regulatory matters and provides counsel to the management and executive leadership team on issues regarding the firm, its registered representatives and its registered investment advisor representatives. Mr. Miller also has responsibility for the oversight of the firm s Supervision Department where he provides strategic direction to the department and oversees the development, implementation, communication and review of all policies, procedures and technology. During his tenure at Securities America, Mr. Miller has served in many roles including Chief Compliance Officer, Chief Risk Officer, Privacy Officer, AML Officer and Identity Theft Prevention Officer. Prior to joining Securities America, he served as in-house counsel and was a partner in a management consulting firm. Mr. Miller has been a featured speaker and panel member at various industry and regulatory conferences, and is an author and contributor of articles related to arbitration, compliance and regulatory issues. He currently serves as a member of the Compliance Council, and a member of the Arbitration and DOL Task Forces for The Financial Services Institute, an advocacy organization for independent financial services firms and independent financial advisors. He also serves as a member of the FINRA Membership Committee which represents a cross-section of the securities industry and advises FINRA on wide-ranging matters of interest and concern to firms, as well as, the Arbitration Task Force Committee whose mission is to consider possible enhancements to its arbitration forum by improving the transparency, impartiality and efficiency of the forum for all participants. He received his bachelor s degree in business administration from Iowa State University and a Juris Doctorate from the Creighton University School of Law. He is a member of the Association of Corporate Counsel, Financial Planning 2018 Financial Industry Regulatory Authority, Inc. All rights reserved. 2

3 Association, National Society of Compliance Professionals, American Bar Association and the Minnesota Bar Association. Mr. Miller holds the series 7, 24 and 66 securities licenses Financial Industry Regulatory Authority, Inc. All rights reserved. 3

4 2018 FINRA Annual Conference May 21 23, 2018 Washington, DC Upcoming Regulatory Changes

5 Panelists Moderator Philip Shaikun, Vice President and Associate General Counsel, FINRA Office of General Counsel Panelists Meredith Cordisco, Associate General Counsel, FINRA Office of General Counsel Robert Hamman, President and Chief Compliance Officer, First Asset Financial, Inc. Kevin Miller, Executive Vice President and General Counsel, Securities America, Inc. 1

6 Agenda Engagement in the Rulemaking Process Rule Development Life Cycle Retrospective Rule Reviews Tracking Regulatory Developments FINRA Resources Firm Approaches Upcoming Regulatory Changes Approved Rules and Current Proposals Questions and Wrap-Up 2

7 Engagement in the Rulemaking Process Rule Development Life Cycle FINRA s rulemaking process provides multiple points and avenues for the industry to engage. As part of FINRA360, FINRA sought comment in a Special Notice on ways to enhance engagement during the rulemaking process. The existing processes already include many of the suggestions received in response to the Special Notice and others have been implemented. 3

8 Engagement in the Rulemaking Process Rule Development Life Cycle Rule Idea Source Rule Development FINRA Committees FINRA Board of Governors Regulatory Notice FINRA Board of Governors Comments SEC Federal Register Comments / FINRA Response SEC Approval Reg Notice Announcing Approval 4

9 Engagement in the Rulemaking Process Retrospective Rule Reviews Program led jointly by the Office of the Chief Economist and OGC to periodically look back at significant rules or rule sets to ensure they remain relevant and appropriately designed to achieve their investor protection objectives Comprehensive assessment process that seeks broad input from all stakeholders Regulatory Notice seeking public comment In-depth interviews with diverse set of external stakeholders Input from affected FINRA operating departments Advisory committees Trade organizations Survey Any resultant rule proposals go through ordinary rulemaking process 5

10 Engagement in the Rulemaking Process Retrospective Rule Reviews Ongoing Reviews Annual Compliance Meeting Requirement (Regulatory Notice 18-14; comments due 6/25/18) Carrying Agreements Rule (Regulatory Notice 18-10; comments due 5/23/18) Payments for Market Making (assessment nearing completion) Outside Business Activities (Regulatory Notice proposal) MAP Rules (Regulatory Notice with proposal forthcoming) Gifts, Gratuities and Non-Cash Compensation (re-evaluating proposal in light of Reg BI) 6

11 Tracking Regulatory Developments FINRA Resources What s New 7

12 Tracking Regulatory Developments FINRA Resources Rule filing Status Report 8

13 Tracking Regulatory Developments FINRA Resources Compliance Calendar 9

14 Tracking Regulatory Developments FINRA Resources Subscriptions Weekly Update and other opt-in s for industry RSS feeds provide immediate notifications as soon as information is posted to certain finra.org pages including Notices, Requests for Comment, Rule Filings and News Releases. 10

15 Approved Rules and Current Proposals Approved Rules Consolidated Registration Rules and Exam Restructuring Current Proposals Outside Business Activities Remote Inspections High Risk Brokers Projections of Performance MAP Amendments Related to Unpaid Arbitrations Quantitative Suitability Corporate Financing Rule Amendments IPO Allocation Rule Amendments Amendments to Communications and Research Rules to Conform to FAIR Act 11

16 Notable Rule Changes Consolidated Registration Rules and Exam Restructuring (Regulatory Notice 17-30) Registered rep candidates must take the SIE and relevant top off exams (with grandfathering) Expansion of permissive registrations to allow any AP to obtain any registration permitted by member New waiver program to requalify registered persons who left to work for a financial services industry affiliate Status: Effective October 1,

17 Notable Proposals Outside Business Activities Proposal (Regulatory Notice 18-08) Would streamline OBA/PST into a single rule that applies only to registered persons All OBAs would require notice to firm, unless activity is on behalf of an affiliate Firm would be required to perform a reasonable risk assessment only of investment-related OBAs to determine whether to approve, approve with conditions or disapprove No supervision of underlying OBA required, unless activity could not occur without being an AP of the firm Must supervise to ensure conditions applied are being met Status: reviewing comments received 13

18 Notable Proposals Remote Inspections (Regulatory Notice 17-38) Would give firms the option to conduct remotely inspections required by Rule 3110 for locations that meet specified criteria (qualifying offices) Requires policies and procedures to determine whether a location is eligible for remote inspection as a qualifying office and to assess whether conducting a remote inspection is reasonable. 14

19 Notable Proposals Remote Inspections (Regulatory Notice 17-38) Qualifying office criteria: Not more than three APs conducting business Can t hold out to public as an office of firm No handling of customer funds or securities No required gold source documents held at the location Must conduct business on authorized firm systems and platforms Locations with annual inspection requirement excluded, except for OSJ and supervisory branch offices that conduct limited specified activities or functions No significant disciplinary history for APs at the location Status: drafting rule filing 15

20 Notable Proposals High Risk Brokers Proposal (Regulatory Notice 18-16; comments due 6/29/18) Proposal would: allow Hearing Panel to impose limits on activities and require firm to adopt heightened supervision while matter is on appeal require heightened supervision during SD eligibility review by FINRA require disclosure of taping firm status require a materiality consultation with MAP group when natural person with a criminal record or specified risk event seeks to become an owner, control person, principal or registered rep 16

21 Other Approved Rules and Proposals Projections of Performance (Regulatory Notice 17-06) Would permit projections of the performance of asset allocation or other investment strategies in customized investment planning illustrations. Requires a reasonable basis for all assumptions, conclusions and recommendations and certain disclosures, including the material assumptions and limitations applicable to the illustration. Prior principal approval required of communication or template to be used by investors with similar profiles and objectives 17

22 Other Approved Rules and Proposals MAP Amendments Related to Unpaid Arbitration (Regulatory Notice 18-06) Would create further incentives for the timely payment of arbitration awards by preventing an individual from switching firms, or a firm from using asset transfers or similar transactions, to avoid payment of arbitration awards while staying in business Quantitative Suitability (Regulatory Notice 18-13; comments due 6/19/18) Would remove the element of control currently required to demonstrate a violation of quantitative suitability (i.e., churning) Would not change the obligations to prove that the transactions were recommended and that the level of trading was excessive and unsuitable in light of the customer s investment profile 18

23 Other Approved Rules and Proposals Corp Financing Rule Amendments (Regulatory Notice 17-15) Proposed amendments to FINRA Rule 5110 (Corporate Financing Rule Underwriting Terms and Arrangements) intended to modernize, simplify and clarify its provisions Would retain the primary principle of the rule -- that no member firm or person associated with a member firm may participate in a public offering for which the terms and conditions, including the aggregate amount of underwriting compensation, are unfair, unreasonable or inconsistent with any FINRA rule IPO Allocation Rule Amendments Proposed changes to Rule 5130 (Restrictions on the Purchase and Sale of Initial Public Offerings) and Rule 5131 (New Issue Allocation and Distributions) to address, among others, sovereign wealth funds that are owners of brokerdealers and foreign pension plans Part of the Capital Formation initiatives 19

24 Other Approved Rules and Proposals Amendments to Communications and Research Rules to Conform to FAIR Act Proposal to conform Rules 2210 (Communications with the Public) and 2241 (Research Analysts and Research Reports) to the Fair Access to Investment Research Act 20

25 Upcoming Regulatory Changes Monday, May 21 1:45 p.m. 2:45 p.m. Resources FINRA Notices FINRA Regulatory Notice 18-16, High-Risk Brokers, FINRA Requests Comment on FINRA Rule Amendments Relating to High-Risk Brokers and the Firms That Employ Them (April 2018) FINRA Regulatory Notice 18-14, Retrospective Rule Review, FINRA Requests Comment on the Effectiveness and Efficiency of Its Rule on the Annual Compliance Meeting (April 2018) FINRA Regulatory Notice 18-13, Quantitative Suitability, FINRA Requests Comment on Proposed Amendments to the Quantitative Suitability Obligation Under FINRA Rule 2111 (April 2018) FINRA Regulatory Notice 18-10, Retrospective Rule Review, FINRA Requests Comment on the Effectiveness and Efficiency of Its Carrying Agreements Rule (March 2018) FINRA Regulatory Notice 18-08, Outside Business Activities, FINRA Requests Comment on Proposed New Rule Governing Outside Business Activities and Private Securities Transactions (February 2018) FINRA Regulatory Notice 17-38, Remote Branch Office Inspections, FINRA Requests Comment on a Proposal to Amend Rule 3110 (Supervision) to Provide Firms the Option to Conduct Remote Inspections of Offices and Locations That Meet Specified Criteria (November 2017) FINRA Regulatory Notice 17-30, Qualification and Registration, SEC Approves Consolidated FINRA Registration Rules, Restructured Representative-Level Qualification Examinations and Changes to Continuing Education Requirements (October 2017) Financial Industry Regulatory Authority, Inc. All rights reserved. 1

26 FINRA Regulatory Notice 17-15, Corporate Financing, FINRA Requests Comment on Proposed Amendments to the FINRA Corporate Financing Rule (April 2017) FINRA Regulatory Notice 17-06, Communications with the Public, FINRA Requests Comment on Proposed Amendments to Rules Governing Communications with the Public (February 2017) Financial Industry Regulatory Authority, Inc. All rights reserved. 2