Hi There. I revised my website: it now includes my blog. This means you go to one cyberplace to visit me, not two.
This is the last blog entry I'll make on this account, and I'll leave it here for visitors who are looking for me. Go to my website (http://www.imhoffconsultingproject.com/) and click the 'blog' link to get to my postings. Some of the old entries may have issues with links...forgive me or at very least inform me when you hit such a snag.
Thanks for reading!
Monday, February 28, 2011
Monday, January 17, 2011
Belated Happy New Year
The only reason I'm adding this blog entry is that if you landed on my blog and saw the "December Dates" entry, you might think the Patriots were still headed to the Super Bowl. I wanted to spare you that moment of hopeful confusion. It's January and the Pats are going sledding instead. As a Steelers fan living in New England, I have to admit that this shocking turn of events will make for a less hostile mood in the 'hood next weekend. Phew!
Very brief reminders:
If you have to, under the FACT ACT and the Red Flags Rule, make sure you put in place a Written Identity Theft Program. To my knowledge, the rule is now enforceable. Look for my prior ramblings on this topic if you want some background.
If you do annual disclosures in January, such as sending Privacy Notices and information on SIPC and Broker-Check, remember to send them. Also remember that SEC offers a form of model privacy notice, in case you want to switch to a format that will meet their approval. Your existing notice may be fine--but you'll have to review Reg. S-P to be sure. Again, look for my earlier blather on this subject.
Remember, pre-notifcation to and review by a supervisor of all new 'other business' or 'outside business activities' of Reps is now required. Reps can't start doing something new on the side unless this review process has taken place first--and you firms have to document this. And for existing OBA you have until June, as far as I can see, to document your reviews. Start thinking about how you'll do this and getting the documentation in place. If you used a year-end RR questionnaire that solicited this information, use those answers as a basis for requesting and gathering further information on the outside activities.
Don't forget to do a periodic OFAC check of all current customers/accounts. You can define 'periodic.' Put the results in your files.
And remember to encrypt any information you give FINRA on portable storage devices. Notice 10-59 describes this new requirement.
That's it for now. Writing updates to procedures--don't forget to update yours.
Very brief reminders:
If you have to, under the FACT ACT and the Red Flags Rule, make sure you put in place a Written Identity Theft Program. To my knowledge, the rule is now enforceable. Look for my prior ramblings on this topic if you want some background.
If you do annual disclosures in January, such as sending Privacy Notices and information on SIPC and Broker-Check, remember to send them. Also remember that SEC offers a form of model privacy notice, in case you want to switch to a format that will meet their approval. Your existing notice may be fine--but you'll have to review Reg. S-P to be sure. Again, look for my earlier blather on this subject.
Remember, pre-notifcation to and review by a supervisor of all new 'other business' or 'outside business activities' of Reps is now required. Reps can't start doing something new on the side unless this review process has taken place first--and you firms have to document this. And for existing OBA you have until June, as far as I can see, to document your reviews. Start thinking about how you'll do this and getting the documentation in place. If you used a year-end RR questionnaire that solicited this information, use those answers as a basis for requesting and gathering further information on the outside activities.
Don't forget to do a periodic OFAC check of all current customers/accounts. You can define 'periodic.' Put the results in your files.
And remember to encrypt any information you give FINRA on portable storage devices. Notice 10-59 describes this new requirement.
That's it for now. Writing updates to procedures--don't forget to update yours.
Friday, December 3, 2010
December Dates
These kinds of dates are not the fun ones, but they're worth paying attention to:
1. December 10: Due date for notification of change of accountant. If you have appointed a different accountant to do your annual audit, you have to tell SEC and FINRA about it. Please reference my blog entry of last December for specifics--the information is still good and you'll save me time. You're great: thanks!
2. December 13: FINRA renewal payments due. Remember, even if you disagree with what is on your preliminary renewal statement, pay it! You can make amendment filings now that will be reflected on the final statement (Jan. 3): at that point you can get a refund if you overpaid. Here is a link to FINRA's page on payment options.
3. December 15: Effective date of new Rule 3270 requiring reps to pre-notify the firm of their new outside business activities--and requiring the firm to consider those activities in the context of its securities business. I blabbed about this in a recent (yeah, October was recent in my mind) entry. See here.
4. December 23: Deadline for all year-end filings on CRD. Remember, you can post-mark termination filings (like dropping states or dropping reps) to December 31 if you want.
5. December 31: End of your right to use self-congratulatory Privacy Notices. The use of SEC's "model form" is advisable for those who want to be sheltered by the safe harbor. Not sure what I'm talking about? Search my blog for "Privacy Notices" and you'll hear all about it.
6. December 31: The last day of the year. Oh, and as of the next day, in theory, the FACT ACT is enforceable. Since that effective date changes more often than I do when getting ready for a holiday party, I'm not convinced it will stick. See this blog for details and sarcasm.
Happy December, everyone!
1. December 10: Due date for notification of change of accountant. If you have appointed a different accountant to do your annual audit, you have to tell SEC and FINRA about it. Please reference my blog entry of last December for specifics--the information is still good and you'll save me time. You're great: thanks!
2. December 13: FINRA renewal payments due. Remember, even if you disagree with what is on your preliminary renewal statement, pay it! You can make amendment filings now that will be reflected on the final statement (Jan. 3): at that point you can get a refund if you overpaid. Here is a link to FINRA's page on payment options.
3. December 15: Effective date of new Rule 3270 requiring reps to pre-notify the firm of their new outside business activities--and requiring the firm to consider those activities in the context of its securities business. I blabbed about this in a recent (yeah, October was recent in my mind) entry. See here.
4. December 23: Deadline for all year-end filings on CRD. Remember, you can post-mark termination filings (like dropping states or dropping reps) to December 31 if you want.
5. December 31: End of your right to use self-congratulatory Privacy Notices. The use of SEC's "model form" is advisable for those who want to be sheltered by the safe harbor. Not sure what I'm talking about? Search my blog for "Privacy Notices" and you'll hear all about it.
6. December 31: The last day of the year. Oh, and as of the next day, in theory, the FACT ACT is enforceable. Since that effective date changes more often than I do when getting ready for a holiday party, I'm not convinced it will stick. See this blog for details and sarcasm.
Happy December, everyone!
Monday, November 15, 2010
Is an Anagram of "Wells Notice" Okay?
I'm thinking "swell notice" might be somewhere in my manual, or "client lowse"? Colleen's wit"? Or maybe "elite clowns"? Will one of these do?
What I am referring to is this: in last week's FINRA news release and attached Letter of AWC FINRA states that Goldman Sachs failed to include the term “Wells notice” in its procedures manual. As far as I can discern, there is no rule or specific guidance calling for this exact terminology. So I'm wondering if FINRA examiners will accept a substitute...an anagram (ha ha) or perhaps something reasonable (I'm being serious now), like procedures requiring Reps to promptly inform firms of necessary changes to U4, including any new 'yes' answers on U4 disclosure questions. That--the latter--is what most firms probably have in their manuals. But let's assume that is not enough. Uh, given the whopping $650,000 fine imposed on Goldman, I think it's safe to assume that is not enough.
Okay, to be fair, I will note that the fine was also assessed for GS's failure to update its Reps' U4s to disclose the actual on-going SEC investigations that were made known to Reps via, yes, Wells notices. So there is some substance behind the action.
My point here? Check your procedures to see if they include the phrase "Wells notice" and an explicit requirement that registered persons immediately inform you of any investigations they are subjected to. You can then sort out whether or not such an investigation merits reporting on U4 (see Question 14G(2)).
Many thanks to Andy's Anagram Solver for online assistance.
What I am referring to is this: in last week's FINRA news release and attached Letter of AWC FINRA states that Goldman Sachs failed to include the term “Wells notice” in its procedures manual. As far as I can discern, there is no rule or specific guidance calling for this exact terminology. So I'm wondering if FINRA examiners will accept a substitute...an anagram (ha ha) or perhaps something reasonable (I'm being serious now), like procedures requiring Reps to promptly inform firms of necessary changes to U4, including any new 'yes' answers on U4 disclosure questions. That--the latter--is what most firms probably have in their manuals. But let's assume that is not enough. Uh, given the whopping $650,000 fine imposed on Goldman, I think it's safe to assume that is not enough.
Okay, to be fair, I will note that the fine was also assessed for GS's failure to update its Reps' U4s to disclose the actual on-going SEC investigations that were made known to Reps via, yes, Wells notices. So there is some substance behind the action.
My point here? Check your procedures to see if they include the phrase "Wells notice" and an explicit requirement that registered persons immediately inform you of any investigations they are subjected to. You can then sort out whether or not such an investigation merits reporting on U4 (see Question 14G(2)).
Many thanks to Andy's Anagram Solver for online assistance.
Monday, October 18, 2010
Outside Business Activities: The New Rule
Pull up Notice 10-49 to see FINRA's announcement of some recent Rule Consolidation changes. Within these is the shiny new FINRA Rule 3270 on Outside Business Activities of Registered Persons. It becomes effective December 15 for new notifications of OBA; but for reps with current outside activities, firms must comply with the supplementary material by June 15, 2011.
For what they're worth, here are my comments. Bit lengthy: my apologies.
1. This rule applies to ‘registered persons’ not ‘associated persons.’ (But the selling away rule, 3040, applies to associated persons.) Here a definitions to remind you of the difference for now--def's may change soon:
According to Article I Definitions in NASD By-Laws, "person associated with a member" or "associated person of a member" means: (1) a natural person who is registered or has applied for registration under the Rules of the Corporation; (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the Corporation under these By-Laws or the Rules of the Corporation; and (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member
For "registered person" I offer the following: From NASD 1031(a): “All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as representatives shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1032.” And from 1031(b): Persons associated with a member, including assistant officers other than principals, who are engaged in the investment banking or securities business for the member including the functions of supervision, solicitation or conduct of business in securities or who are engaged in the training of persons associated with a member for any of these functions are designated as representatives.
2. The rule applies to persons with a “reasonable expectation of compensation”: this broadens the scope from the prior rule. No more excuses: if the Rep may make money from an outside activity, it counts.
3. The rule newly requires “PRIOR” written notice. It used to be “prompt.” That means Reps can’t start doing outside business activities and then later inform their BD employers. Firms should have a clear pre-notification requirement in their procedures manuals and they should devise a notification mechanism, like an internal form, that prompts information from the RR about the activity. They should include a time frame for the notice that allows enough time for the firm to meet its review obligations under 3270.01 (see next comment).
4. The rule newly requires the firm to consider the ramifications of the outside activity as follows:
The firm should document its review of these things: it would make sense to have the results of the review appear on the notice form. If no conflict is perceived and the business is not ‘selling away,’ the firm can move forward without action (or it can document ‘approval’ of the activity—not technically required, but implicit). But if the answer to questions (1) and/or (2) is ‘yes’ then the firm has to do something about it, like imposing specific conditions or limitations on the registered person's outside business activity or outright prohibiting it. Again, the records should document all requirements/prohibitions, as well as the communications to the registered person describing the firm’s decision. If the answer to number (3) is ‘yes,’ then the firm has to apply its procedures for 3040 compliance and recordkeeping—or prohibit the activity.
5. The rule change was scaled back from the original: FINRA member voices were heard, such that now, firms will not have to supervise the surf lessons Reps are giving on the side. (However, if a firm feels like mutual customers are risking their lives by taking these surf lessons, thus increasing the possibility of losing firm accounts, firms can say CowaSorry to the Rep…no surf lessons to firm customers.)
6. Here’s what I can’t figure out: why didn’t the new rule include reference to, or somehow reflect on, the reporting requirements on U4. U4 calls for disclosure of OBA as follows:
7. Back to the subject of effective dates: firms should notify all registered persons of this new 'prior notice' requirement--and tell them that as of Dec. 15 they must, in effect, seek pre-approval of any new OBA. And the firm must remember to review all existing OBA by next June to determine if limitations, conditions or prohibitions should be imposed.
That's all for now. Why don't you let me know what you think?
For what they're worth, here are my comments. Bit lengthy: my apologies.
1. This rule applies to ‘registered persons’ not ‘associated persons.’ (But the selling away rule, 3040, applies to associated persons.) Here a definitions to remind you of the difference for now--def's may change soon:
According to Article I Definitions in NASD By-Laws, "person associated with a member" or "associated person of a member" means: (1) a natural person who is registered or has applied for registration under the Rules of the Corporation; (2) a sole proprietor, partner, officer, director, or branch manager of a member, or other natural person occupying a similar status or performing similar functions, or a natural person engaged in the investment banking or securities business who is directly or indirectly controlling or controlled by a member, whether or not any such person is registered or exempt from registration with the Corporation under these By-Laws or the Rules of the Corporation; and (3) for purposes of Rule 8210, any other person listed in Schedule A of Form BD of a member
For "registered person" I offer the following: From NASD 1031(a): “All persons engaged or to be engaged in the investment banking or securities business of a member who are to function as representatives shall be registered as such with NASD in the category of registration appropriate to the function to be performed as specified in Rule 1032.” And from 1031(b): Persons associated with a member, including assistant officers other than principals, who are engaged in the investment banking or securities business for the member including the functions of supervision, solicitation or conduct of business in securities or who are engaged in the training of persons associated with a member for any of these functions are designated as representatives.
2. The rule applies to persons with a “reasonable expectation of compensation”: this broadens the scope from the prior rule. No more excuses: if the Rep may make money from an outside activity, it counts.
3. The rule newly requires “PRIOR” written notice. It used to be “prompt.” That means Reps can’t start doing outside business activities and then later inform their BD employers. Firms should have a clear pre-notification requirement in their procedures manuals and they should devise a notification mechanism, like an internal form, that prompts information from the RR about the activity. They should include a time frame for the notice that allows enough time for the firm to meet its review obligations under 3270.01 (see next comment).
4. The rule newly requires the firm to consider the ramifications of the outside activity as follows:
(1) Does it interfere with or compromise the registered person's responsibilities to the firm and/or customers?
(2) Could it be viewed by customers or the public as part of the firm’s business based upon, among other factors, the nature of the proposed activity and the manner in which it will be offered?
(3) Is the OBA really ‘selling away’ under NASD Rule 3040?
The firm should document its review of these things: it would make sense to have the results of the review appear on the notice form. If no conflict is perceived and the business is not ‘selling away,’ the firm can move forward without action (or it can document ‘approval’ of the activity—not technically required, but implicit). But if the answer to questions (1) and/or (2) is ‘yes’ then the firm has to do something about it, like imposing specific conditions or limitations on the registered person's outside business activity or outright prohibiting it. Again, the records should document all requirements/prohibitions, as well as the communications to the registered person describing the firm’s decision. If the answer to number (3) is ‘yes,’ then the firm has to apply its procedures for 3040 compliance and recordkeeping—or prohibit the activity.
5. The rule change was scaled back from the original: FINRA member voices were heard, such that now, firms will not have to supervise the surf lessons Reps are giving on the side. (However, if a firm feels like mutual customers are risking their lives by taking these surf lessons, thus increasing the possibility of losing firm accounts, firms can say CowaSorry to the Rep…no surf lessons to firm customers.)
6. Here’s what I can’t figure out: why didn’t the new rule include reference to, or somehow reflect on, the reporting requirements on U4. U4 calls for disclosure of OBA as follows:
“Enter "yes" or "no" to indicate whether you currently are engaged in any other business, either as a proprietor, partner, officer, director, employee, trustee, agent, or otherwise. Exclude non-investment-related activity that is exclusively charitable, civic, religious or fraternal, and is recognized as tax exempt.”Better yet, why didn’t the respective Notice reflect on this subject? I have to assume the following: outside ‘business’ activities do not refer to charitable, civic, religious or fraternal organizations/activities. BUT it might be worth addressing, to a limited extent, these categories on the internal notice form. Why? So that any such activities that also include ‘investment-related activities’—for instance, helping to manage the church’s investments—are not overlooked. If these types of activities are not investment-related, then U4 reporting is not required. If they are, then the firm should complete the same review as for other OBA…and make decisions and document them. I wish I could be clear about this strategy, but I’m not. It seems like a firm could, based on the rule language, prohibit a registered person from engaging in charitable work if the firm deemed it a conflict or risk to business. But what do I know? Enough to be curious…
7. Back to the subject of effective dates: firms should notify all registered persons of this new 'prior notice' requirement--and tell them that as of Dec. 15 they must, in effect, seek pre-approval of any new OBA. And the firm must remember to review all existing OBA by next June to determine if limitations, conditions or prohibitions should be imposed.
That's all for now. Why don't you let me know what you think?
More New Rule Numbers: Chapter X
First off, who doesn't love the letter X? C'mon, it's true. What popped into my head today as I read FinCEN's announcement on simplifying the structure of its rules and regulations? Racer X! No, not the 80's band, but Rex Racer himself! That guy's posture, not to mention his mystique, is something to adore.
Anyway...back to national security...(Racer X is clearly a candidate for SAR filings, non?)...check out the link I just provided you and you will see that, thanks to the motivated bunch over at FinCEN, we will soon be able to use the handy--and if this term doesn't call to mind Sparky's mechanical prowess, you are not on my page--"Chapter X Citation Translator" to figure out the new rule numbers (and to revise your AML written programs). Yes, more new rule numbers. As if we haven't had enough of those lately.
Implementation date: March 1, 2011. So, Speed, push that calendar accelerator button and mark this date (with an X?) as a reminder.
Anyway...back to national security...(Racer X is clearly a candidate for SAR filings, non?)...check out the link I just provided you and you will see that, thanks to the motivated bunch over at FinCEN, we will soon be able to use the handy--and if this term doesn't call to mind Sparky's mechanical prowess, you are not on my page--"Chapter X Citation Translator" to figure out the new rule numbers (and to revise your AML written programs). Yes, more new rule numbers. As if we haven't had enough of those lately.
Implementation date: March 1, 2011. So, Speed, push that calendar accelerator button and mark this date (with an X?) as a reminder.
Tuesday, September 21, 2010
Hedge Fund Marketers: Beware The Dodd-Frank Act!
Unregistered hedge fund marketers, that is. Important distinction (for now).
Let me explain.
Hedge funds (i.e., IA firms) that use third parties (finders/consultants/solicitors/placement agents) for introductions to potential investors may face a new limitation. In June, SEC adopted the 'pay to play rule' which, among other things, "Prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions." (See SEC news release.)
What this means is that IA firms/hedge funds cannot pay an unregistered entity for introductions to public pension plans. The entity has to be an SEC-registered investment adviser or a registered broker-dealer. So you FINRA member BD's out there are in a stronger position when competing with unregistered finders (you know who those guys are...the ones not reading this blog). These unregistered types will now have to, under temporary Rule 15Ba2-6T of the Securities Exchange Act of 1934, register as "municipal advisors" by October 1, 2010. See SEC's links about Form MA-T. (And don't ask me why they decided to spell 'advisors' with an 'o' this time...?)
Back to you, the FINRA member firm who offers investments in hedge funds, sometimes to public pension funds: What changes? Nothing yet, as far as I can tell. But be on the lookout for new rules from FINRA about this sales activity. Not sure how much misery they'll inflict on you, but somehow I think it will be mildly annoying at very least. Stay tuned.
Let me explain.
Hedge funds (i.e., IA firms) that use third parties (finders/consultants/solicitors/placement agents) for introductions to potential investors may face a new limitation. In June, SEC adopted the 'pay to play rule' which, among other things, "Prohibits an adviser from paying a third party, such as a solicitor or placement agent, to solicit a government client on behalf of the investment adviser, unless that third party is an SEC-registered investment adviser or broker-dealer subject to similar pay to play restrictions." (See SEC news release.)
What this means is that IA firms/hedge funds cannot pay an unregistered entity for introductions to public pension plans. The entity has to be an SEC-registered investment adviser or a registered broker-dealer. So you FINRA member BD's out there are in a stronger position when competing with unregistered finders (you know who those guys are...the ones not reading this blog). These unregistered types will now have to, under temporary Rule 15Ba2-6T of the Securities Exchange Act of 1934, register as "municipal advisors" by October 1, 2010. See SEC's links about Form MA-T. (And don't ask me why they decided to spell 'advisors' with an 'o' this time...?)
Back to you, the FINRA member firm who offers investments in hedge funds, sometimes to public pension funds: What changes? Nothing yet, as far as I can tell. But be on the lookout for new rules from FINRA about this sales activity. Not sure how much misery they'll inflict on you, but somehow I think it will be mildly annoying at very least. Stay tuned.
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