Compliance Newsflash – August 8, 2018

August 8, 2018

August 8, 2018

DLA is committed to keeping our clients and friends updated on relevant news and topics in the industry by distributing a weekly Compliance Newsflash. We hope this provides you with helpful and insightful information for you and your firm! Join our mailing list by clicking here: DLA Newsflash Registration.

FINRA Seeks Comment on Proposed Amendments to the Membership Application Program Rules & Fintech Innovation in Broker-Dealer Industry
On July 26, 2018,  the Financial Industry Regulatory Authority (FINRA) issued a Regulatory Notice requesting comment on a proposal to the NASD Rule 1010 Series (collectively, the “Membership Application Program” rules). The Membership Application Program rules govern how FINRA’s Department of Member Regulation (the Department) reviews new membership applications and continuing membership applications (CMAs). An applicant must be able to show its ability to comply with the standards set forth in the Membership Allocation Program rules, and, to ensure that such applicant can comply with the rules, the Department considers an applicant’s financial, operational and compliance systems. The proposed rules are aimed to enhance investor protections and eliminate unnecessary burdens on firms. The proposal would simplify a number of provisions or terms, amends or deletes outdated provisions, and streamlines the rules and its processes by eliminating or consolidating duplicative provisions and codifying existing Department practices.
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OCIE Publishes Risk Alert on Most Frequent Best Execution Compliance Issues Found During Examinations
On August 7, 2018, Lexology reported the U.S. Securities and Exchange Commission’s Office of Compliance Inspections and Examinations issued a National Exam Program Risk Alert on July 11, 2018.1 The Risk Alert highlights OCIE’s observations of compliance issues related to an adviser’s duty to seek best execution of client trades under the Investment Advisers Act of 1940, as well as an adviser’s receipt of brokerage and research services (soft dollar arrangements) under section 28(e) of the Securities Exchange Act of 1934.2. The Risk Alert builds on, and in some ways advances, the SEC’s recent proposed interpretation regarding a standard of conduct for investment advisers (Proposed IA Interpretation)3 in which the SEC set forth its view that the duty to seek best execution is an element of the adviser’s duty of care, with the discussion of this duty citing to prior soft dollar interpretive releases under the Exchange Act.4 Similarly echoing the Proposed IA Interpretation, the Risk Alert expresses OCIE’s view that the Advisers Act imposes a fiduciary duty on advisers. As such a duty is not explicitly defined in that statute, the Risk Alert cites to the same equitable common law principles and case law and dicta as the Proposed IA Interpretation.
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