Exam Alert: SEC approves revised FINRA telemarketing rule
The SEC has approved a new consolidated FINRA telemarketing rule. The rule will become effective July 29, 2012. The new rule contains provisions that are similar to FTC standards. Changes to the prior rule include:
-Do-not-call lists: Under the old rule, do-not-call requests were required to be honored for five years. Under the new rule, do-not-call requests must be honored indefinitely.
-Unencrypted consumer account numbers: Firms may not buy or sell unencrypted consumer account numbers for telemarketing purposes.
-Submission of billing information: Firms must obtain the informed consent of a customer in order to charge them for a telemarketing transaction. The firm must also identify the account to be charged. If the transaction involves "pre-acquired account information and a free-to-pay conversion feature," then the firm must make an audio recording of the telemarketing transaction.
-Abandoned calls: Firms may not abandon outbound calls, unless they meet the following safe harbor provisions:
1. The firm employs technology that drops no more than 3% of answered calls over a 30-day period (or the duration of a single calling campaign that lasts less than 30 days).
2. The firm lets the phone ring for 15 seconds or 4 rings before disconnecting the unanswered call.
3. If there is no associated person available to speak with the person answering the call within 2 seconds of the person's completed greeting, the firm plays a recording giving the name and number of the firm.
4. The firm retains records of compliance with the safe harbor.
-Prerecorded messages: Except as noted above (under "abandoned calls"), firms may not make outbound calls that deliver prerecorded messages unless they have the written consent of the person receiving the call. The call must include an opt-out mechanism, as well.
-Credit card laundering: Credit card laundering is prohibited. Credit card laundering is "the practice of depositing into the credit card system a sales draft that is not the result of a credit card transaction between the cardholder and the firm." Soliciting someone else to engage in credit card laundering is prohibited as well. Obtaining unauthorized access to the credit card system is also prohibited
These rules also apply to associated persons of a firm.
Source: FINRA Regulatory Notice 12-17
This exam alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, and Series 82.
Exam Alert: FINRA raises exam fees
Effective April 2, 2012, FINRA will increase the fees associated with several of its qualification examinations. The fee increases range from $5 to $25. In addition, FINRA will impose a $15 service charge for examinations taken outside of the territorial limits of the United States.
Source: FINRA Regulatory Notice 12-16
This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 55, Series 62, Series 79, and Series 82.
Exam Alert: SEC requests that broker-dealers provide FINRA with SAR information
On January 26, 2012, the SEC issued a letter that authorized FINRA to request suspicious activity reports (SARs) and supporting documentation from member firms when FINRA conducts examinations, investigations, or risk assessment for its examination program. Member firms must make these documents available to FINRA, as well as any information that would reveal the existence of an SAR or any decision not to file an SAR.
Source: FINRA Regulatory Notice 12-08
This alert applies to the Series 79, Series 62, Series 6, Series 26, Series 24, Series 99, Series 7, and Series 82
Exam Alert: US Labor Dept requires disclosures from plan service providers
The US Labor Department has finalized a rule under ERISA that will require service providers for pension plans to disclose information about their fees to the employers sponsoring the plans. The rule will be effective July 1, 2012.
The rule will require disclosure of the service provider's compensation structure (including both "direct" compensation from the plan sponsor and "indirect" compensation from other sources), as well as potential conflicts of interest. The rule is limited in scope to ERISA-covered defined benefit and defined contribution pension plans. The rule applies to service providers who expect to receive at least $1,000 in compensation for specified plan-related services, including fiduciary, advisory, brokerage, and recordkeeping services, or other financial services for which they receive indirect compensation.
Sources:
U.S. Treasury, Labor Departments Act to Enhance Retirement Security for an America Built to Last
Fact Sheet - Final Regulation Relating to Service Provider Disclosures Under Section 408(b)(2)
This alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, Series 65, Series 66, and Series 82 - these exams address ERISA considerations.
Exam Alert: FINRA recommends heightened supervision for complex products
On January 17, 2012, FINRA highlighted the need for firms to have adequate supervisory and compliance programs in place in order for registered representatives to recommend complex products. FINRA identified several characteristics that may cause a product to be considered "complex," such as embedded derivatives or contingencies. The notice states that agents should determine suitability, consider the customer's financial sophistication, discuss the products with the customer, and consider alternative investments that could meet the customer's goals. The firm should also review the performance of the products and train the agents about the products.
Source: FINRA Regulatory Notice 12-03
This alert applies to the Series 6, Series 7, Series 24, Series 26, Series 55, Series 62, Series 79, Series 82, Series 99, Series 63, Series 65, and Series 66.
Exam Alert: Disclosures required by the Department of Labor do not need to be filed with FINRA
On October 20, 2010, the U.S. Department of Labor (DOL) adopted a rule that requires retirement plan administrators to show participants in participant-directed individual account plans (e.g., 401(k) plans) information on alternative investment options. On January 13, 2012, FINRA stated that communications that contain only the information required by the DOL rule do not need to be filed with FINRA. Note that communications that have additional information not required by the DOL rule must be filed with FINRA.
Source: FINRA Regulatory Notice 12-02
This alert applies to the Series 62, Series 6, Series 26, Series 24, Series 7, and Series 82.
Exam Alert: SEC modifies accredited investor standard based on Dodd-Frank
The SEC has changed its net worth standards for accredited investors to conform to provisions of the Dodd-Frank Act. The change stipulates that the value of an investor's primary residence may not be used when calculating net worth to determine whether the person is an accredited investor on the basis of having a net worth of over $1 million. The change will be effective 60 days after publication in the Federal Register.
An accredited investor is allowed to participate in certain unregistered limited private offerings. This SEC website shows the standards that determine who qualifies as an accredited investor.
Source: SEC Release 2011-274
This alert applies to the Series 6, Series 7, Series 24, Series 62, Series 79, and Series 82.
Exam Alert: FINRA changes guidelines for books and records rules
On December 5, 2011, new FINRA rules regarding books and records took effect. These changes affect recordkeeping time limits, customer account information, customer complaints, order information and arbitration agreements.
Recordkeeping - the default time limit for keeping records is six years. This means that if FINRA requires a firm to keep a record but does not specify how long the record must be kept, it must be kept for six years. If a change is made to an account and documentation is required to make that change, the documentation must be preserved for six years after the change. If the account is closed, the firm must maintain the most current information about the account for six years after the account closes.
Account information - When opening an account, the signature of the registered representative opening the account is no longer needed. Instead, FINRA requires the signatures of all persons who are responsible for the account. Additionally, discretionary accounts no longer require the age of the person with discretionary authorization. Instead, an acknowledgment that said person is over 18-years-old, without a specific age, is sufficient.
Customer complaints - Firms must now keep records of customer complaints for four years, not three.
Order information - Previously, firms were allowed to accept block orders from an investment adviser for customer accounts if the firm received the specific account names and designations by the end of the business day. Now, firms are allowed to accept orders from an investment adviser for customer accounts if the order involves more than one customer and the firm receives the specific account names and designations by noon of the next business day.
Pre-dispute arbitration agreements - The disclosure language for pre-dispute arbitration agreements has been updated to include that arbitrators are required to explain their decision in eligible cases if all parties involved file a joint request 20 days before the first scheduled hearing date.
To read Regulatory Notice 11-19 where FINRA outlines these changes in more detail, please click here. Additionally, we have included a summary of these changes on our Exam Updates page, where we include updates to the exams on a regular basis. You may want to brush up on these rules if you're taking the Series 7, 6, 24, 26, 62, 99 and 79!
Exam Alert: FINRA provides guidance on TIPS fund advertising
On October 27, 2011, FINRA provided guidance on its rules that govern communications with the public regarding Treasury Inflation-Protected Securities (TIPS) funds. Specifically, if a TIPS fund's current yield is adjusted monthly based on changes in the inflation rate, communication must explain that these changes can cause the yield to vary greatly from month to month. If an advertisement includes an unusually high current yield, "the material must disclose that the yield is attributable to the rise in the inflation rate, which might not be repeated."
Source: FINRA Regulatory Notice 11-49
This alert is relevant to the Series 6, 7, 24, 26, 62, and 82.