On Dec. 23, SEC spokesman John Nester announced a new task force for scrutinizing broker-dealers. This task force, which began development in November 2013, will work with the SEC’s national exam program and FINRA. According to the agency’s 2013 Financial Report, the task force will focus on current practices within the broker-dealer community and develop national initiatives for potential investigations. “Enforcement will coordinate these broker-dealer related initiatives across the agency, and centralize information and expertise regarding ongoing investigations and examinations, and industry practices and trends, to generate quality referrals and investigations.”
The 2013 Financial Report also credits the Asset Management Unit, created in early 2010 by former Enforcement Director Robert Khuzami, for increased focus on investment firms, particularly where there are repeated compliance failures “that may lead to bigger problems.” The Asset Management Unit works in coordination with the SEC’s Office of Compliance, Inspections and Examinations program to ensure that firms have viable compliance programs in place, and to pursue enforcement actions when they do not. Since the unit was created, there has been a significant increase in enforcement actions against investment firms.
Relatedly, on Jan. 2, FINRA established an enforcement team to target recidivist brokers. In a letter to members, FINRA noted that some brokers have been subject to a “pattern of complaints or disclosures” involving sales practice abuses. “When FINRA examines a firm that hires these high risk brokers, examiners will review the firm’s due diligence conducted in the hiring process, review the adequacy of supervision of higher risk brokers … and examiners will place particular focus on these brokers’ clients’ accounts in conducting reviews of sales practices.” Reportedly, the enforcement team is currently active with five members.
These new regulatory efforts suggest an increased number of enforcement actions for 2014. Firms should take note, and review their current compliance efforts accordingly.