November 28, 2010
Posted in: Capitol Hill | Securities Law | FINRA | SEC
In response to the Dodd-Frank law, passed by Congress to prevent additional securities crimes, there will be a new reshuffling of power and responsibility among regulators to assume these new roles.
For starters, thousands of advisors-and their member firms-will have less than a year to register with state regulators like the North American Securities Administrators Association, while in the past they were only watched by FINRA and or the SEC. This switch will apply to advisors who hold less than $100 million in assets.
As part of this regulatory shift, a new formula will decide an advisors assets and firms must identify five categories of employees-auditors, brokers, custodians, administrators and marketers-who may or may not have access to client records.
Up until now the responsibility for enforcing federal securities laws was handled primarily by the Securities and Exchange Commission. FINRA and SEC arbitration claims have increased steadily over the past decade, and unfortunately both regulatory bodies have failed to spotmassive fraud schemes lasting years-most notably Bernie Madoff.
Financial experts believe the Dodd-Frank law will heighten regulatory focus in certain areas, which will include nabbing more broker-dealer supervisors for their repeated failures.
Lloyd Karp, the chief compliance officer for Buckingham Research Group, was cited earlier last month along with his member firm and forced to pay $160,000 to the SEC for massive supervisory failures. In 2006, Karp allegedly failed to complete approval forms for 100 employee trades and provided incomplete information to SEC investigators during a routine annual inspection.
While Karp's behavior may not sound egregious, since he did not personally steal billions of dollars from his clients, serious financial wrongdoing often occurs in a lapse supervisory system. When nobody looks over a bad broker's trades, he or she can often commit securities crimes for months or years without anyone knowing.
In theory, the Dodd-Frank law will allow state regulators to cast a larger net in their own backyard. The NASAA has never had this sort of responsibility before, so it is probably best to take a wait-and-see approach.
But if this new law leads to more investors filing claims against bad brokers, or more brokers curtailing their unscrupulous behavior, then perhaps it is already a success.
In response to the Dodd-Frank law, passed by Congress to prevent additional securities crimes, there will be a new reshuffling of power and responsibility among regulators to assume these new roles. In response to the Dodd-Frank law, passed by Congress to prevent additional securities crimes, there will be a new reshuffling of power and responsibility among regulators to assume these new roles.
For starters, thousands of advisors-and their member firms-will have less than a year to register with state regulators like the North American Securities Administrators Association, while in the past they were only watched by FINRA and or the SEC. This switch will apply to advisors who hold less than $100 million in assets.
As part of this regulatory shift, a new formula will decide an advisors assets and firms must identify five categories of employees-auditors, brokers, custodians, administrators and marketers-who may or may not have access to client records.
Up until now the responsibility for enforcing federal securities laws was handled primarily by the Securities and Exchange Commission. FINRA and SEC arbitration claims have increased steadily over the past decade, and unfortunately both regulatory bodies have failed to spotmassive fraud schemes lasting years-most notably Bernie Madoff.
Financial experts believe the Dodd-Frank law will heighten regulatory focus in certain areas, which will include nabbing more broker-dealer supervisors for their repeated failures.
Lloyd Karp, the chief compliance officer for Buckingham Research Group, was cited earlier last month along with his member firm and forced to pay $160,000 to the SEC for massive supervisory failures. In 2006, Karp allegedly failed to complete approval forms for 100 employee trades and provided incomplete information to SEC investigators during a routine annual inspection.
While Karp's behavior may not sound egregious, since he did not personally steal billions of dollars from his clients, serious financial wrongdoing often occurs in a lapse supervisory system. When nobody looks over a bad broker's trades, he or she can often commit securities crimes for months or years without anyone knowing.
In theory, the Dodd-Frank law will allow state regulators to cast a larger net in their own backyard. The NASAA has never had this sort of responsibility before, so it is probably best to take a wait-and-see approach.
But if this new law leads to more investors filing claims against bad brokers, or more brokers curtailing their unscrupulous behavior, then perhaps it is already a success.
