News & Events – Bates Research

The North American Securities Administrators Association (“NASAA”) continues to assert its member states’ interests in fighting for and protecting investors and consumers in the financial markets. We have assembled a roundup of recent NASAA actions on enforcement, model legislation and regulatory policy, including updates on: COVID-19 enforcement, whistleblowers, restitution funds for securities fraud victims, SEC "Accredited Investor" definition, DOL advice proposal, FINRA proposed beneficiary arrangements, financial professionals with diminished capacity, and what to expect going forward.

Labor Day is almost here, which means those lazy, remote days of summer are coming to a close. What did you miss when you powered down this summer? We have a roundup of all the important Bates news, events and alerts from July and August as well as a sneak peek of the next few months to help you head into Fall fully prepared. 

Over the past several weeks, the Financial Crimes Enforcement Network (FinCEN) has issued new guidance on customer due diligence requirements, an advisory on cyber-enabled financial crime and an alert concerning scams involving fraudulent payments denominated in convertible virtual currency. These are significant compliance communications for financial institutions and come on the heels of FinCEN’s recent alerts on imposter fraud and money mule schemes.

Since our last regulatory update on the adoption of FINRA’s proposal to align its suitability and non-cash compensation rules with Regulation Best Interest (“Reg BI”), the self-regulatory organization issued guidance on private placement communications, recommended that firms provide information to them on digital assets, and proposed a series of new rule changes. Bates examines the details of FINRA’s updated guidance.

More than two years after the Fifth Circuit Court of Appeals vacated the Department of Labor’s fiduciary duty rule, the agency proposed new regulations on investment advice for retirement accounts under ERISA and the Internal Revenue Code. Under the heading “Improving Investment Advice for Workers & Retirees,” the DOL proposed a new “prohibited transaction class exemption” for investment adviser fiduciaries, reinstated the 1975 regulation and its five-part test for defining investment advice, and made certain changes to its pre-existing prohibited transaction class exemptions. Bates examines the details of the new DOL proposal.

As Managing Director for Bates Group's Retail Litigation practice, Julie Johnstone manages and oversees financial litigation and arbitration matters. Her team assists broker-dealer and investment advisers, banks and insurance companies, as well as State and Federal Regulators, throughout the life cycle of their retail litigation matters, from early case assessments, profit and loss reports, damage analyses, and “what if” scenarios, to expert consultation and testimony at hearing, as well as mediation and settlement support. We asked Julie to consider the state of retail litigation in light of the pandemic and to anticipate some of the long-term implications on case management and dispute resolution going forward.

In the past week, the SEC Office of Compliance Inspections and Examinations (OCIE) and the Financial Crimes Enforcement Network (FinCEN) warned financial institutions to guard against specific and increasingly prevalent types of fraud against consumers. These activities have been uncovered through examinations, suspicious activity reports (SARs), law enforcement information and public reporting. OCIE and FinCEN’s alerts follow other federal and state reports urging firms to increase vigilance against similar crisis-related misconduct.

Bates continues our practice leadership conversations this week with Alex Russell, Managing Director of Bates’ White Collar, Regulatory and Internal Investigations Practice. Alex’s team supports corporations, financial services firms, law firms and regulators by bringing technical, big data analytics and managerial expertise to a variety of disputes and investigations. We asked Alex about investigations, big data and other regulatory issues now and possibly on the horizon. Get the details in today's Bates Practice Leadership Insights.

FINRA issued Special Alert Notice 20-16 to share COVID-19-related off-site transition and supervisory practice information. The information was derived from recent FINRA discussions with small, mid-sized and large firms. Bates has been tracking and reporting on COVID-19-related guidance since the pandemic began. In this article, we take a closer look at FINRA’s observations on firm efforts to transition to remote work environments and to supervise remote work activities.

In its recently-released 2020 Investment Advisor Section Annual Report, NASAA highlights the growing concern by state regulators over cybersecurity preparation and practice. Based on firm examinations in 41 U.S. jurisdictions during the first half of 2019, NASAA found that cybersecurity deficiencies are on the rise. The issue has taken on new urgency in the wake of the pandemic. Bates takes a closer look in the full article.

Bates continues our practice leadership conversations this week with Edward Longridge, Managing Director of Bates Anti-Money Laundering and Financial Crimes Practice, for his views on the matters most pressing for AML officers right now, including coronavirus-related fraud, transaction monitoring, and third-party risk management. Here is a recap of our conversation.

The first part of this year has been challenging for the equity markets. In March, the S&P 500 Index plunged into bear market territory as volatility soared to historic levels. The sudden appearance of a severe global pandemic is just the most recent example of a “black swan event” roiling the markets. In this paper, Bates Director and expert Greg Kyle examines in detail bear markets, black swan events, and volatility to gain some perspective on how the recent—or current?—bear market compares with historical periods.

Concern about recommendations of complex financial products for retail investors has been at the center of the debate over changing standards for broker-dealers and investment advisers. With full implementation of the heightened Reg BI requirements less than a month away, FINRA issued a Notice reminding firms of their sales obligations when offering recommendations on complex oil-related ETPs. FINRA’s Notice provides an important case study not only as to the specific expectations of firms that trade oil-related ETPs, but also on how the self-regulator appears to be handling concerns about recommendations to retail clients of complex products in a volatile market. Bates takes a closer look in the full article, including what FINRA expects of firms and registered representatives.

State and federal regulators are pressing firms to increase vigilance against crisis-related misconduct and other vulnerabilities in order to protect investors. The North American Securities Administrators Association (NASAA) recently took several public steps in response to COVID‑19 challenges, including forming a COVID-19 Enforcement Task Force that will identify and stop the latest potential threats to investors. Meanwhile, FINRA issued alerts detailing the most prevalent scams during the pandemic and the recommended practices for both investors and firms to combat them. Bates Research takes a closer look.

In this first of a series of conversations with Bates Group practice leaders, we caught up with Robert Lavigne, Managing Director and Bates Compliance Practice Leader, and Hank Sanchez, Esq., Bates Compliance Managing Director and former SEC and FINRA regulator, to get an understanding of what they are hearing from compliance officers right now, as well as advice for compliance teams in the "new normal."

At a time when regulators are emphasizing their understanding of, and flexibility concerning, the difficulties facing financial firms as a result of COVID-19, FinCEN and the umbrella Federal Financial Institutions Examination Council (FFIEC) are demanding robust compliance with Bank Secrecy Act/ /Anti-Money laundering (BSA/AML) requirements. Since Bates’ last report, in which FinCEN highlighted warnings about bad actors finding opportunities created by the volatility and the fear in the markets, FinCEN issued additional compliance information to its previous alert, and FFIEC published a long- anticipated update to its BSA/AML Examination Manual. Bates Research has the details.