Securities Regulators Warn Firms about Supervisory Issues

Broker Dealers should be on the lookout for Inappropriate Communications, Complex Products Sales, and Brokers in need of Heightened Supervision 

According to Investment News this week, an “Enforcement Development” panel at FINRA’s annual meeting warned brokerage firms of potential concerns that they should be focused on including inappropriate communications, the sale of complex products, and brokers who may need heightened supervision. 

In one talk given at the annual meeting a director at the Securities and Exchange Commission pointed to the recent $125 million settlement with JPMorgan Chase & Co for communicating about business on their personal devices, using text messaging apps such as WhatsApp and personal email, according to the article. (See: JP Morgan Securities Hit with $125 Million for Widespread Recordkeeping Failures) 

The SEC rep said the firm didn’t preserve the written communications, which is a violation of securities laws.  

Another regulator from FINRA reportedly pointed out the importance of adequately supervising brokers with histories of misconduct and referred to a case from December that involved SagePoint Financial Inc. See: SagePoint Financial Censured & Fined $300,000.) 

According to the article, one SagePoint broker was caught altering variable annuity documents, after failing to be put on heightened supervision which led to withdrawals from customer accounts without client permission. According to the FINRA representative, “This is much broader than one representative.” 

The representative from FINRA also said the regulator is focused on brokers selling complex products, and its oversight of risky, complicated investments such as leveraged and inverse exchange-traded products and options. 

The regulator rep reportedly noted that some firms and brokers may not have a clear understanding of “alternative” mutual funds, which use high-risk options as part of their investment strategy. (See: 5 Firms Charged with Exchange-Traded Products Violations.) 

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