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Financial Services Law Insights and Observations


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  • SEC issues temporary guidance on signature and notary requirements

    Federal Issues

    On April 2, the SEC’s Division of Trading and Markets (Division) issued a statement regarding temporary requirements—as a result of Covid-19—for certain documents ordinarily submitted to the Division in paper form, including documents that require signatures or notarization. The Division states that it will not recommend enforcement actions for noncompliance with paper document and manual signature submission requirements against persons experiencing Covid-19-related logistical compliance difficulties, provided that certain conditions are met, including: (i) paper submission alternatives are coordinated with Division staff; (ii) electronic signatures are used in place of manual signatures; (iii) manually signed signature pages for all electronically signed submissions are retained and presented to the Division upon request; (iv) an indication of the date and time a signature page was signed is furnished; and (v) “policies and procedures governing this process” are created and implemented.

    The Division states that it will not recommend an enforcement action for failure to obtain notarization services, including those required for electronically filed broker-dealer annual reports due prior to June 30, if the filer: (i) provides a note on the document to indicate that it was not notarized “based upon relief from Commission staff and difficulties arising from COVID-19”; and (ii) provides written notification that the document was not notarized due to Covid-19 related issues to the Division at, or, in the case of a broker-dealer annual report, to “designated examining authority.”

    The statement’s guidance is effective for papers submitted from March 16 through June 30.

    Federal Issues Agency Rule-Making & Guidance SEC Broker-Dealer Notary Covid-19

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  • Minnesota Commerce Department provides relief to financial professionals

    State Issues

    On March 30, the Minnesota Commerce Department issued Regulatory Guidance 20-08 to provide certain relief to broker-dealers, state registered investment advisers, federal covered investment advisers, and their registered agents or representatives (collectively, “financial professionals”). The guidance provides the following relief:

    • Certain financial professionals who are not registered or notice filed with the commissioner and have been displaced from their ordinary business locations are granted a temporary exemption from the registration and filing requirements of certain provisions of the Minnesota Securities Act, provided that certain requirements are met. Qualifying financial professionals may engage in certain enumerated activities without registering or filing with the commissioner.
    • Broker-dealers, state registered investment advisors, and federal covered investment advisors are permitted to submit Forms U4 without first obtaining physical signatures from individual agents and representatives, provided that certain requirements are met.
    • State registered investment advisors are provided relief from annual update filings and certain document delivery requirements.

    State Issues Covid-19 Minnesota Broker-Dealer

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  • Indiana Securities Commissioner eases certain filing and other requirements for financial professionals

    State Issues

    On March 24, the Indiana Securities Commissioner issued an administrative order providing relief to broker-dealers, investment advisers, and their registered agents or investment adviser representatives affected by the Covid-19 outbreak. Among other things, the administrative order provides the following relief:

    • creates a temporary exemption from registration where a person is working from a location outside of the jurisdiction where that person is currently registered, as long as the person notifies the Division;
    • permits firms to submit Form U4 electronically without obtaining physical signatures until it is practicable to do so;
    • grants a 45-day extension of time for state registered investment advisers to adhere to any filing, updating, or customer delivery requirements required by Forms ADV; and
    • extends the time to May 15 for any broker-dealer or investment adviser to submit complete responses to the 2020 Investment Adviser/Broker-Dealer Questionnaire.

    State Issues Indiana Covid-19 Securities Broker-Dealer Investment Adviser

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  • Colorado securities regulator provides temporary relief to securities businesses

    State Issues

    On March 20, the Acting Securities Commissioner of Colorado provided temporary regulatory relief to broker-dealers, state-registered investment advisers, federal covered investment advisers, and their registered agents. The relief exempted these professionals from certain registration and filing requirements if, among other things, they are displaced and working from a location outside their jurisdiction of registration or their clients have been displaced from their ordinary state and are now residing in Colorado, and they were properly registered with all required regulators on March 1, 2020.

    State Issues Covid-19 Colorado Securities Broker-Dealer Investment Adviser

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  • Alabama Securities Commission provides temporary relief for certain financial professionals

    State Issues

    On March 19, the Alabama Securities Commission (ASC) issued an emergency order temporarily exempting certain financial professionals (i.e. broker-dealers, investment advisers, and their registered agents or representatives) who are not registered or notice filed with the ASC and who have been displaced from their ordinary business locations from the registration and filing requirements of the Alabama Securities Act, subject to certain conditions. The emergency order also provides broker-dealers, state registered investment advisors and federal covered investment advisers with relief from the requirement to obtain physical signatures on Forms U4 under the Alabama Securities Act and related regulations, subject to certain conditions. Further, the emergency order permits investment advisors registered with the ASC to perform any of the Form ADV filing, updating and customer delivery requirements set forth by the Alabama Securities Act and related regulations up to 45 days after such action is due to be performed. The emergency order will remain in effect until April 30, 2020, unless extended or rescinded.

    State Issues Covid-19 Alabama Broker-Dealer Investment Adviser Securities

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  • FINRA posts FAQs related to regulatory relief during the Covid-19 pandemic

    Federal Issues

    Since March 18, FINRA has been maintaining and updating FAQs related to regulatory relief due to the Covid-19 pandemic. The FAQs discuss questions concerning, among other things, advertising regulation, anti-money laundering, best execution for buying and selling securities, broker-dealer registration, business continuity planning, and filing extensions for certain reports.

    Federal Issues Covid-19 FINRA Anti-Money Laundering Securities Broker-Dealer

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  • SEC settles with investment entities over ETF recommendations


    On February 27, the SEC announced a settlement with a national bank to resolve allegations that two of its investment entities failed to monitor sales of exchange-traded funds (ETFs) to retail investors. The SEC alleged in its order that the bank’s compliance policies and procedures and supervisory processes were unable to adequately prevent and detect unsuitable recommendations of single-inverse ETFs, which allegedly led to bank investment advisors making recommendations to certain clients who were unaware of the risk of losses when ETFs are held long term. While the bank neither admitted nor denied the SEC’s findings, it agreed to pay a $35 million penalty and distribute funds to affected clients. The bank also agreed to cease and desist from engaging in any future violations of the relevant provisions.

    Securities SEC Exchange-Traded Funds Broker-Dealer Compliance

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  • Broker-Dealer settles with SEC for improper handling of ADRs


    On February 6, the SEC announced a settlement with a broker-dealer to resolve allegations concerning the improper handling of pre-released American Depositary Receipts (ADRs), or “U.S. securities that represent foreign shares of a foreign company.” The SEC noted in its press release that ADRs can be pre-released without the deposit of foreign shares only if: (i) the broker-dealers receiving the ADRs have an agreement with a depository bank; and (ii) the broker-dealer or the broker-dealer’s customer owns the number of foreign shares that corresponds to the number of shares the ADR represents. According to the SEC’s Order Instituting Administrative Proceedings (order), the broker-dealer improperly borrowed pre-released ADRs from other brokers that it should have known did not own the foreign shares necessary to support the ADRs. The SEC also found that the broker-dealer failed to implement policies and procedures to reasonably detect whether its securities lending desk personnel were engaging in such transactions. The broker-dealer neither admitted nor denied the SEC’s allegations, but agreed to pay more than $326,000 in disgorgement, roughly $80,970 in prejudgment interest, and a $179,353 penalty. The SEC’s order acknowledged the broker-dealer’s cooperation in the investigation and that the broker-dealer had entered into tolling agreements.

    Securities SEC Enforcement Settlement American Depositary Receipts Broker-Dealer

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  • CFTC Enters into First-Ever Non-Prosecution Deals in Spoofing Investigation


    On June 29, the Commodity Futures Trading Commission (CFTC) entered into non-prosecution agreements with three futures traders who admitted to engaging in “spoofing” in the U.S. Treasury futures market between 2011 and 2012 (see non-prosecution agreements here, here, and here). Spoofing involves placing bids or offers with the intent to cancel before execution. Here, the traders placed a small bid or offer on one side of the market and a large bid or offer on the opposite side of the market to be cancelled almost immediately (often in less than one second). The traders used the strategy to get smaller orders filled (and filled more quickly) at favorable prices.

    This is the first time the CFTC has used non-prosecution agreements, which the Director of Enforcement called “a powerful tool to reward extraordinary cooperation in the right cases, while providing individual and organizations strong incentives to promptly accept responsibility for their wrong doing and cooperate with the Division’s investigation.” In announcing the agreements, the CFTC lauded the traders’ “timely and substantial cooperation,” noting that their efforts provided assistance in connection with a $25 million settlement with the multinational bank they worked for earlier this year.

    Securities Litigation Federal Issues CFTC Broker-Dealer Enforcement

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  • SEC Requests Public Comments on Investment Adviser Conduct Rules

    Agency Rule-Making & Guidance

    On June 2, 2017, Jay Clayton, Chairman of the SEC, requested public input on standards of conduct for investment advisers and broker-dealers. The SEC last solicited input on the regulation of investment advisers in 2013 and Clayton believes that advances in technology and changes in business models have since transformed the market for retail investment advice. Additionally, confusion surrounding investment adviser conflicts of interest, among other things, have prompted the SEC to seek feedback on the standards. Topics touched on in the request include:

    • types of advisers providing investment advice and applicable standards of conduct for each;
    • conflicts of interest;
    • effects of market developments and advances in technology;
    • fee-based vs. commission-based investment advice;
    • department of Labor’s Fiduciary Rule;
    • pros and cons of multiple standards of conduct for advisers;
    • effects on particular segments of the market;
    • disclosure-based vs. standards-of-conduct-based regulatory action;
    • who should be considered “retail investors”;
    • how should “investment advice” be defined;
    • costs and benefits of different regulatory approaches;
    • comparison of U.S. regulation to non-U.S. regulation in this area;
    • material changes since last data solicitation in 2013.

    Clayton hopes his solicitation will garner “robust, substantive input that will advance and inform the SEC’s assessment of possible future actions.”

    Agency Rule-Making & Guidance SEC DOL Fiduciary Rule Broker-Dealer Securities

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