Bates News, Compliance and Regulatory Alerts | 11-16-22

Are Your Firm’s Policies and Procedures Working as Intended for Rights of Reinstatement?

FINRA has remained focused on ensuring that eligible customers received Rights of Reinstatement (“ROR”)[1] benefits where appropriate. Just recently, we were retained by another large firm looking to leverage the depth of our experience gained through many engagements assisting our clients with Rights of Reinstatement issues since the targeted examination announcement in 2020.

FINRA continues to scrutinize firms’ policies and procedures through examination and enforcement to ensure they are working as intended, and that investors are receiving the benefits they are due. FINRA also expects remediation in any instances where the policies or procedures did not work as intended.

We encourage firms to continue to review the effectiveness of and update their rights of reinstatement related procedures considering this ongoing regulatory focus and make updates to policy or remediation where necessary. Firms should be tracking mutual fund transaction activity and verifying that clients received the benefit of the ROR, as well as considering mutual fund trading in the context of their obligations under Reg BI.

[1] ROR allows a customer to redeem or sell shares in the fund and reinvest some or all of the proceeds and receive a waiver of the sales load or a rebate on the CDSC paid on the sale, within a specified period of time (for example, 90 days), in the same share class of that fund or another fund within the same fund family subject to certain terms and conditions. The terms and conditions vary among funds. See previous Bates alert.

If you are facing a FINRA inquiry or other action, contact Bates today.

How Bates Helps:

Regulatory Investigations and Enforcement

Bates Group supports firms subject to an inquiry or examination related to ROR by importing the firm’s mutual fund trading activity into our programmatic analysis environment, reviewing for ROR-eligible trading activity, and identifying records evidencing that the ROR benefit that we identified as due (whether a front load waiver or CDSC rebate) were handled contemporaneously via various record sources. Any remaining missed benefits are then quantified and summarized at the investor or account level. Bates will also provide insight into how FINRA has responded to various issues in prior ROR matters, assisting with any requests for additional information or support, until a result is agreed upon. Bates will then prepare a repayment file, including calculating prejudgment interest, for the firm to use.