Compliance Newsflash – November 15, 2017

November 15, 2017

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“Disaster” Looms in Dearth of Small-Advisor Exams: Former SEC Chair
On November 10, 2017, AdvisorHub.com reported that the Securities and Exchange Commission’s inability to examine registered investment advisors is a “disaster waiting to happen,” former SEC Chair Mary Jo White warned. Even after bulking up resources for RIA oversight, the agency examines under 12% of small advisory firms annually. That contrasts with some 50% of broker-dealers that are vetted annually by the Financial and Industry Regulatory Authority and state regulators, through delegated authority by the SEC. “It’s a real problem that keeps me up at night,” White said in a keynote address in New York at the Practicing Law Institute. White, who resigned in January after four years as the Obama administration’s chief securities regulator, said her budget-constrained exam staff had left behind an “essentially done proposal” to hire a “sufficiently independent” third party to vet RIAs. Current SEC Chairman Jay Clayton and his staff do not appear interested in picking up the third-party RIA exam plan, she said. White didn’t identify what firm she would have hired, but said that her choice would not have been FINRA, which is financed by securities industry firms and which had vied to expand its jurisdiction to independent advisors.
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SEC Creating Searchable Database of Bad Brokers
On November 8, 2017, The National Law Journal reported the Securities and Exchange Commission is creating a website that will contain “a searchable database of individuals” who have been barred or suspended as a result of federal securities law violations, said the agency’s chairman, Jay Clayton. “This resource is intended to make the prior actions of repeat offenders and fraudsters more visible to investors,” Clayton said at the Practising Law Institute’s 49th Annual Institute of Securities Regulation conference in New York. “Clearly, there are fraudsters in our marketplace who are seemingly unafraid of, or undeterred by, the risk of being caught. The SEC can target the underlying conduct of those fraudsters – and we do – but we also can and should arm investors with the information that makes it more difficult for them to be defrauded.” The searchable website, Clayton continued, “will be particularly valuable when bad actors have shifted from the registered space for investment advisors and broker-dealers to the unregistered space.”
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