The SEC will offer no quarter to RIAs who ignore their basic compliance responsibilities. At a bare minimum, firms must appoint a dedicated and qualified CCO, adopt tailored policies and procedures, annually test the program, and generally attempt to comply with the Advisers Act. The initiation of proceedings, rather than a settled order, suggests that the SEC intends to pursue aggressive penalties.
Firms such as banks and consultants should take notice that the SEC and/or FINRA will take action for failure to preserve required records. Consult your compli-pro to ascertain the records required by Rules 17a-3 and 17a-4.
OUR TAKE: The SEC will take punitive action against firms that fail to preserve regulatory records, whether or not the firm acted with bad intent. We recommend creating a regulatory records chart to serve as reference for all employees. Also, firms should create a policy and related procedures governing how it will ensure all employees comply with regulatory requests.
FINRA fined a large broker-dealer $1.5 Million for failing to properly maintain electronic brokerage records. According to FINRA, the respondent’s ATS business failed to maintain over 100 million trading records in “write once, read only” (WORM) format over a 6-year period. FINRA also faults the BD for failing to maintain duplicate copies of over 300 million orders placed over the same period. The failures also resulted in charges that the firm did not have adequate audit or compliance procedures. FINRA said the required records and formats are necessary for regulatory examinations and internal audits.
OUR TAKE: The IT folks must connect with the compi-pros to understand the specific regulatory requirements for electronic data retention. Then, the compli-pros must determine how to implement effective audit and compliance surveillance. The most dangerous phrase in financial services: “That’s not my job.”