As the regulatory landscape is constantly evolving, Compliance Risk Concepts (“CRC”) is issuing its monthly review and summary of FINRA, SEC, and NFA notices and bulletins to assist our clients in keeping abreast of notable regulatory developments and deadlines in an effort to strengthen their compliance and regulatory initiatives.
FINRA
Regulatory Notices
Per Regulatory Notice 23-20, FINRA discusses the guidance and other resources available to assist members with their compliance efforts in connection with the SEC’s Regulation Best Interest (Reg BI). In particular, FINRA highlights the SEC’s series of Staff Bulletins (Bulletins) reiterating standards of conduct for broker-dealers (BDs or members) and investment advisers (IAs): SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Account Recommendations for Retail Investors; SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Conflicts of Interest; and SEC Staff Bulletin: Standards of Conduct for Broker-Dealers and Investment Advisers Care Obligations. FINRA encourages members to review these Bulletins closely, along with the Reg BI Adopting Release and the other guidance and resources identified in this Notice, as part of their ongoing efforts to meet their best interest obligations.
This Notice does not create new legal or regulatory requirements or new interpretations of existing requirements, nor does it relieve firms of any existing obligations under federal securities laws and regulations.
Per Regulatory Notice 23-21, FINRA has observed instances of non-compliance with SEA Rule 15c3-1, SEA Rule 17a-3 and SEA Rule 17a-5 resulting from misapplication of the Financial Accounting Standards Board’s Accounting Standard Codification 606, Revenue from Contracts with Customers (“ASC 606”). This Notice provides guidance regarding potential compliance issues with respect to these rules that may result from the misapplication of ASC 606.
SEC
Final Rules
Per Release No. 34-99149, the SEC is adopting rules under the Securities Exchange Act of 1934 to amend the standards applicable to covered clearing agencies for U.S. Treasury securities to require that such covered clearing agencies have written policies and procedures reasonably designed to require that every direct participant of the covered clearing agency submit for clearance and settlement all eligible secondary market transactions in U.S. Treasury securities to which it is a counterparty. In addition, the SEC is adopting additional amendments to the Covered Clearing Agency Standards with respect to risk management. These requirements are designed to protect investors, reduce risk, and increase operational efficiency. Finally, the SEC is amending the broker-dealer customer protection rule to permit margin required and on deposit with covered clearing agencies for U.S. Treasury securities to be included as a debit in the reserve formulas for accounts of customers and proprietary accounts of broker-dealers (“PAB”), subject to certain conditions.
Per Release No. 34-99193, the SEC is adopting amendments to Volume II of the Electronic Data Gathering, Analysis, and Retrieval system Filer Manual (“EDGAR Filer Manual” or “Filer Manual”) and related rules and forms. EDGAR Release 23.4 will be deployed in the EDGAR system on December 18, 2023.
Proposed Rules
There were no proposed rules in December.
Interim Final Rules
There were no interim final rules in December.
Interpretive Releases
There were no interpretive releases in December.
There were no policy statements in December.
NFA
Notices to Members
Notice I-23-22
December 4, 2023
Guidance on the annual affirmation requirement for entities currently operating under an exemption from CPO or CTA registration
The CFTC requires any person that claims an exemption from CPO registration under CFTC Regulation 4.13(a)(1), 4.13(a)(2), 4.13(a)(3), 4.13(a)(5), an exclusion from CPO registration under CFTC Regulation 4.5 or an exemption from CTA registration under 4.14(a)(8) (collectively, exemption) to annually affirm the applicable notice of exemption within 60 days of the calendar year end, which is February 29, 2024, for this affirmation cycle.
Persons re-affirming an exemption under 4.13(a)(1), 4.13(a)(2), 4.13(a)(3) and 4.13(a)(5) will be required to attest that neither the person nor its principals has in its background any statutory disqualifications listed under Section 8a(2) of the Commodity Exchange Act.
Failure to affirm an active exemption from CPO or CTA registration will result in the exemption being withdrawn on March 1, 2024. For registered CPOs or CTAs, withdrawal of the exemption will result in the entity being subject to Part 4 Requirements regardless of whether the entity otherwise remains eligible for the exemption. For non-registrants, the withdrawal of the exemption may subject the person or entity to enforcement action by the CFTC, if either continues to operate without registration or exemption.
See the Notice for details on how to complete the affirmation process.
Notice I-23-23
December 5, 2023
CPO Members—Effective date of FinCEN’s beneficial ownership reporting rule
The Financial Crimes Enforcement Network (FinCEN) has issued a final rule establishing beneficial ownership information (BOI) reporting requirements for existing and newly formed corporations, limited liability companies and similar entities (collectively referred to as a “reporting company”). As of January 1, 2024, subject to certain exemptions, reporting companies will be required to file a report with FinCEN identifying their BOI. Generally, BOI refers to identifying information about the individuals who directly or indirectly own or a control a reporting company.
FinCEN’s final rule implements the Corporate Transparency Act’s (Act) beneficial ownership reporting provisions. Under the Act, CFTC-registered entities are exempt from the reporting requirement. However, a pooled investment vehicle (PIV), such as a commodity pool, will be required to comply with FinCEN’s reporting rule unless it qualifies for another exemption under the Act. Importantly, the Act exempts from the BOI reporting requirement any PIV operated or advised by an SEC-registered broker dealer (BD) or investment advisor (IA). As a result, a commodity pool operated or advised by an SEC-registered BD or IA is exempt from the reporting requirement.
However, NFA Member commodity pool operators (CPO) which operate a commodity pool that does not qualify for an exemption under the Act will be required to report BOI to FinCEN for any commodity pools they operate in accordance with the following deadlines.
For a commodity pool created or registered to do business before January 1, 2024, a CPO must file a BOI report with FinCEN by January 1, 2025.
For a commodity pool created or registered on or after January 1, 2024, a CPO must file a BOI report with FinCEN within 90 days from the time the CPO receives actual notice that the commodity pool’s creation or registration is effective. In addition, for any commodity pool created or registered on or after January 1, 2024, a CPO will need to report the commodity pool’s company applicants. A company applicant is the individual who directly files the document that creates or registers the company.
FinCEN will not accept any BOI reports prior to January 1, 2024, and FinCEN has emphasized that reporting companies should not submit any BOI reports prior to that date.
Notice I-23-24
December 14, 2023
FCM and RFED filing requirements for Christmas and New Year’s Day—Reminder for upcoming holidays
This is a reminder that the following futures commission merchant (FCM) and retail foreign exchange dealer (RFED) regulatory filings will be impacted as follows by the Christmas and New Year’s Day holidays:
Christmas Day—Monday, December 25, 2023
Daily segregated, 30.7 secured, cleared swaps customer collateral and daily forex statements prepared as of Friday, December 22, 2023, are required to be submitted by 12:00 noon on Tuesday, December 26, 2023; and
Daily segregated, 30.7 secured, cleared swaps customer collateral and daily forex statements are required to be prepared as of Monday, December 25, 2023, and are required to be submitted by 12:00 noon on Tuesday, December 26, 2023.
New Year’s Day—Monday, January 1, 2024
Daily segregated, 30.7 secured, cleared swaps customer collateral and daily forex statements prepared as of Friday, December 29, 2023, are required to be submitted by 12:00 noon on Tuesday, January 2, 2024;
Daily segregated, 30.7 secured and cleared swaps customer collateral statements are not required to be prepared as of Monday, January 1, 2024; and
Daily forex statements are required to be prepared as of Monday, January 1, 2024, and are required to be submitted by 12:00 noon on Tuesday, January 2, 2024.
Any information filed by FCMs or RFEDs after its due date must be accompanied by a fee for each business day that it is late.
Holiday Filing Schedule
Visit NFA’s website to view a complete schedule of daily filing requirements for upcoming holidays and an updated calendar of Segregated Investment Detail Report (SIDR) due dates. NFA recommends viewing the calendars and keeping this Notice as a reference for the upcoming 2024 holiday filing requirements.
For more information about filing financial reports, visit NFA’s website.
Questions concerning the requirements should be directed to NFA’s Information Center (800-621-3570 or 312-781-1410 or information@nfa.futures.org).
Notice I-23-25
December 14, 2023
SD holiday filing requirements
Visit NFA’s website to view schedules of 2024 swap dealer (SD) holiday filings, risk data and margin monitoring filings and financial reporting due dates. We recommend viewing the schedules and keeping this Notice as a reference for the upcoming 2024 holiday filing requirements.
For more information about SD filing requirements visit NFA’s website.
Questions concerning the requirements should be directed to NFA’s Information Center (800-621-3570 or 312-781-1410 or information@nfa.futures.org).
NFA News Releases
There were no NFA News Releases in December.
FinCEN News Releases
December 07, 2023
WASHINGTON—During its ninth annual Law Enforcement Awards Program, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) recognized agencies that used Bank Secrecy Act (BSA) data to successfully pursue and prosecute criminal investigations.
“While these awards recognize our law enforcement partners who have effectively used BSA data in their investigations, it is important to emphasize that these investigations and prosecutions may not have been possible without financial institutions’ efforts to identify and report suspicious activity,” said FinCEN Director Andrea Gacki during the ceremony. “Safeguarding the financial system and promoting national security is a collective effort.”
Financial industry representatives and law enforcement officials participated in the ceremony. FinCEN will post summaries of all case nominations to its website in the coming weeks. Brief descriptions of the award-receiving cases follow:
Fraud: Internal Revenue Service–Criminal Investigation, Federal Bureau of Investigation, and Small Business Administration Office of Inspector General
Investigators used BSA filings to identify more than 150 loans totaling approximately $21 million in a massive pandemic relief fraud ring. The United States Attorney’s Office for the Central District of California and the Department of Justice’s Fraud Section prosecuted this case.
Drug Trafficking Organization Activity: Federal Bureau of Investigation
Forensic accountants used complex analytics to review BSA data and other financial records to identify suspicious transactions in U.S. bank wire entries and trace illicit proceeds across three continents. The United States Attorney’s Offices for the Southern District of New York and the Southern District of Florida prosecuted the cases, with assistance from the United States Attorney’s Office for the Southern District of Texas.
Transnational Criminal Organization Activity: Drug Enforcement Administration
Investigators made extensive use of FinCEN’s programs and resources to aid this investigation, resulting in the seizure of approximately 4.5 metric tons of cocaine hydrochloride in South America bound for the United States. While searching BSA filings on one of the primary subjects, investigators identified additional information that led to the discovery of a money laundering, poly-drug trafficking, and human smuggling empire. This case was jointly prosecuted by the U.S. Attorney’s Office for the Eastern District of Virginia and the Department of Justice’s Money Laundering and Asset Recovery Section.
Proliferation Financing: Department of Defense Office of Inspector General, Defense Criminal Investigative Service, and Homeland Security Investigations
Information received from BSA filings as well as FinCEN’s 314(a) program led to nine defendants being charged with, among other things, conspiracy to commit money laundering and conspiracy to commit mail and wire fraud. As a result of this investigation and prosecution, law enforcement recovered approximately $3 million worth of electronics and communications. This case was prosecuted by the United States Attorney’s Office for the District of Maryland.
Cybercrime: U.S. Secret Service and U.S. Postal Inspection Service
This investigation focused on individuals laundering the proceeds from a business email compromise scheme. BSA information was crucial in identifying accounts and co-conspirators, ultimately leading to successful convictions. The United States Attorney’s Office for the Eastern District of Virginia prosecuted this case.
Corruption: Internal Revenue Service–Criminal Investigation and Global Illicit Financial Team and Homeland Security Investigations
While investigating third-party money laundering, the Internal Revenue Service–Criminal Investigation and Global Illicit Financial Team identified a money remitter who was an investment advisor controlling several U.S. and foreign companies. BSA data revealed that Homeland Security Investigations had also initiated a separate investigation; the agencies were able to merge their efforts. The Department of Justice’s Fraud Section is prosecuting the criminal cases. The United States Attorney’s Office for the Southern District of Florida is handling the asset forfeiture case.
Human Trafficking/Human Smuggling: Department of Justice’s Civil Rights Division, Criminal Section
BSA reporting provided critical leads during this multi-year investigation. Several law enforcement agencies and non-profit entities worked together to bring justice to the 17 victims who cooperated with law enforcement and hundreds of other victims who were subjected to the defendants’ abuse. The United States Attorney’s Office, Middle District of Florida and the Department of Justice’s Civil Rights Division prosecuted the case.
December 11, 2023
REGISTRATION CLOSED
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network will host a virtual information session on beneficial ownership information reporting requirements on Wednesday, December 13 at 2 p.m. Eastern Time.
Beginning January 1, 2024, a new law will require many companies doing business in the United States to report information to the U.S. government about who ultimately owns and controls them. This webinar will cover beneficial ownership information reporting requirements and how to comply with the law, followed by a Q&A session.
- When: Dec 13, 2023, 02:00 PM Eastern Time (US and Canada)
- Topic: Beneficial Ownership Information Reporting Requirements: What You Need to Know
- Register in advance for this webinar:
- https://fincen.zoomgov.com/webinar/register/WN_lh7pK9P8T5WD7w4ZPAYCGw
After registering, participants will receive a confirmation email containing information about joining the webinar.
Update: Due to high demand, registration for Wednesday’s beneficial ownership webinar has closed. Information will be forthcoming on additional webinars, which will take place in the coming weeks.
Update, 12/21/23: A recording of the webinar is available at https://www.youtube.com/watch?v=tJN6eB_Sm0U.
December 20, 2023
Please join U.S. Treasury Office of Terrorism and Financial Intelligence Under Secretary Brian Nelson and Financial Crimes Enforcement Network (FinCEN) Director Andrea Gacki for a briefing on the final rule that establishes parameters for access to and protection of beneficial ownership information. This briefing will cover key requirements for how authorized users will be able to access beneficial ownership information, mechanisms for protecting this sensitive data, and the differences between the proposed rule and the final rule. To attend the briefing, please visit https://www.youtube.com/@fincentreasury at 11 a.m. ET on Thursday, December 21.
December 21, 2023
WASHINGTON—Today, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) took another major step in support of U.S. Government efforts to crack down on illicit finance and enhance corporate transparency by issuing a final rule that establishes the framework for access to and protection of beneficial ownership information (BOI). Issued pursuant to the bipartisan Corporate Transparency Act (CTA), this final rule prescribes the circumstances under which BOI reported in compliance with FinCEN’s September 30, 2022 final BOI Reporting Rule may be disclosed to Federal agencies; state, local, tribal, and foreign governments; and financial institutions, and how it must be protected. FinCEN will also issue today two interagency statements to give banks and non-bank financial institutions guidance on the interplay between the final rule and FinCEN’s existing Customer Due Diligence Rule.
“This final rule is a significant step forward in our efforts to protect our financial system and curb illicit activities,” said FinCEN Director Andrea Gacki. “BOI can provide essential information to law enforcement, intelligence, and national security professionals as they work to protect the United States from bad actors who exploit anonymous shell companies to engage in money laundering, corruption, sanctions and tax evasion, drug trafficking, fraud, and a host of other criminal offenses with impunity, while legitimate businesses suffer from their misdeeds.”
The final rule is the second of three key rulemakings planned to implement the CTA. The first of these rulemakings, the BOI Reporting Rule, requires certain corporations, limited liability companies, and other similar entities created or registered to do business in the United States to report information about their beneficial owners to FinCEN. Those reporting requirements take effect on January 1, 2024, the same day that FinCEN will launch its beneficial ownership information technology system to securely collect, process, and store that information. FinCEN will undertake a third rulemaking to revise FinCEN’s Customer Due Diligence rule, as required by the CTA.
The final rule regarding access to BOI is effective on February 20, 2024. Starting in 2024, FinCEN will begin to provide access to BOI in phases to authorized government agencies and financial institutions that meet the requirements of the final rule.
Beneficial Ownership Information Access and Safeguards Final Rule Fact Sheet
Hot Issue
In early December, FINRA sanctioned four firms—M1 Finance LLC, Open to the Public Investing, Inc., SoFi Securities LLC, and SogoTrade, Inc.—a combined $2.6 million, including over $1 million in restitution to retail customers enrolled in fully paid securities lending programs and fines of $1.6 million for the firms’ related supervisory and advertising violations. All four firms offered retail customers self-directed trading through their respective mobile applications and websites. The firms failed to establish, maintain, and enforce written supervisory procedures reasonably designed to supervise their fully paid securities lending offerings. The firms also provided customers with disclosure documents that contained misrepresentations that customers would receive compensation for the lending of their securities, but the customers did not receive any compensation.
Our Perspective
Regulators continue to demonstrate their commitment to protecting investors by aggressively pursuing bad actors and reviewing and updating regulations to guard investors against constantly evolving threats.
The best approach to regulatory compliance is a proactive one. Staying ahead of the curve by taking note of statements and guidance released by regulators and using them as a barometer to assess the current regulatory climate can help ensure that a firm is prepared for a regulatory exam. Rather than scrambling to rectify issues or meet deadlines, a thorough, active compliance program that considers and incorporates regulatory developments is in a better position to satisfy regulators and preserve operations so they can best serve their clients.
For more information, please contact:
Mitch Avnet
p. (646) 346-2468
David Amster
p. (917) 568-6470
Sources:
- FINRA Notices
- FINRA Press Release
- SEC Regulatory Actions
- SEC Press Releases
- NFA Notices
- FinCEN News Releases