Bates Research | 02-24-21

In Brief: Regulatory Compliance Roundup

Bates continues to track regulatory developments that have long-term impact. Here, we highlight in brief several ongoing matters that affect regulatory compliance.

FINRA Small Broker Annual Report Filing Extension

On February 18, 2021, the SEC ordered that certain smaller broker-dealers be given an additional thirty days to file their required annual reports. To qualify, these FINRA-selected smaller broker-dealers must, among other things, be in compliance with their net capital requirements as of the fiscal year end, have capital and allowable liabilities under $50 million, send a written extension notice to FINRA, and electronically file the report with the SEC. The relief is effective immediately.

DOL Class Exemption

On February 16, 2021, a Department of Labor class exemption went into effect. As Bates described previously, the exemption allows investment advice fiduciaries to receive compensation, “including as a result of advice to roll over assets from a Plan to an IRA,” and to engage in other principal transactions that would have been prohibited under ERISA and the Code. For a DOL fact sheet on the key provisions for the exemption, see here.

Lessons from COVID-19 Pandemic

On February 16, 2021, the comment period closed for FINRA’s recent request for firms to weigh in on lessons learned from “stakeholders’ experiences during the pandemic.” FINRA had requested member opinions on the impact to firms’ operations, business models and business continuity planning. The initiative is important as FINRA contemplates potential permanent changes to its rules, operations and administrative processes. (See here for a comprehensive look at guidance, updates and other information provided to financial institutions that may be affected.)

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FINRA Rule on Registered Member Being Named a Customer Beneficiary

On February 15, 2021, new FINRA obligations limiting a registered person from being named a customer’s beneficiary or holding a position of trust for or on behalf of a customer went into effect. FINRA Rule 3241 is intended to protect investors by requiring all firms to “affirmatively address” circumstances where an associated person is “named a beneficiary, executor or trustee, or to have a power of attorney or similar position of trust for or on behalf of a customer.” The rule requires the member firm to review and approve or disapprove the registered person who seeks to assume such a status or act in such a capacity. The rule does not apply where the customer is a member of the registered person’s “immediate family.” (See also, Bates article here.)

New York Investment Adviser Registration

On February 1, 2021, new New York State regulations governing registration and examination requirements for registered investment advisers went into effect. The rule allows current investment advisers who are covered by the new regulations to continue without an approved registration until December 2, 2021, so long as certain criteria are met. The rules also create an examination waiver category for people who have been serving as investment advisers for at least two years.

NASAA Model Rule on Continuing Education for IARs

In late November 2020, NASAA adopted a model rule to ensure adviser representatives keep current on regulatory requirements and best practices. Investment advisor representatives are not subject to a continuing education requirement to maintain their licenses with state regulators. The model rule requires IARs to take 12 hours of continuing education annually. (See here for the latest FAQs and updates on the model rule.)

On January 15, 2021, NASAA stated that it approved a timeline and plan for the development of the program. That process includes working to standardize the criteria under which content providers, instructors and individual CE courses will be approved. NASAA stated that the criteria is expected to be “completed ... and available” by the end of the second quarter of 2021.

Bates Compliance provides tailored solutions for financial institutions and investment advisers. Our compliance team includes senior compliance staff and former regulators, with expertise in the development of policies, procedures, supervisory and compliance processes, including in state and federal registration, supervision and oversight, recordkeeping and disclosure.

For NY Investment Advisor registration support and questions about identifying those affected investment advisers required to file Form U-4 and/or required to register with New York, call Bates today:

Hank Sanchez, Managing Director, hsanchez@batesgroup.com | 504-450-9632

Rory O'Connor, Director, roconnor@batesgroup.com | 860-671-7270