This summer the Securities and Exchange Commission instituted five separate settled fines against two SEC-registered investment advisers, three investment adviser representatives, and a marketing consultant who committed and/or caused violations of the Testimonial Rule under the Investment Advisers Act of 1940 through their use of social media and the internet. (read the entire article)
Several testimonial ads about registered representatives were created and published on social media outlets. Additionally, two videos were created and published online containing client testimonials on its public website and on YouTube.com. The SEC’s regulators found that these firms (and their ads) were in violation of Section 206(4) of the Advisers Act and Rule 206(4)-1(a)(1).
As a compliance supervisor are you aware of what ads your registered advisors are putting online? Are they creating and publishing videos without sending them first to compliance for approval? With all of your responsibilities how do you find the time to continually monitor your advisor’s online presence? Without action, this could leave your firm vulnerable to fines from the SEC or FINRA because of online content you are unaware of.
SiteQuest Technologies’ Eagle Eye application contains industry-leading technology that will help you monitor and discover your advisors’ online presence. Eagle Eye is designed with built-in intelligence that searches and sifts through the web’s billions of pages of clutter bringing only the most relevant results to your attention. Our multi-query processes and dynamically designed algorithms provide more accurate search results for you to quickly review. Our application is loaded with features that automate your monitoring and documentation processes. Our clients have found that Eagle Eye cuts their workload by as much as 80%.
Each of these afore mentioned firms were fined between $35,000 and $10,000 from the SEC. That fine just the tip of the iceberg. There are lawyer fees, employee time spent and resources dealing with the issue, proving to the regulatory agency that the fine has been fixed and that you are now in compliance. There is also the unknown cost to your firm’s reputation.
Eagle Eye is a first of its kind application that is designed specifically to help the financial industry easily and effectively supervise the web. Contact us today to discuss your supervision concerns. We will be able to match our products to your needs.
In January of this year FINRA release it “2018 Regulatory and Examination Priorities Letter”. High-risk firms and rogue brokers were one of the top concerns cited by President and CEO, Robert Cook.
Then on April 30, 2018, FINRA released it Regulatory Notice 18-15 regarding Heightened Supervision. FINRA noted that there are times where heightened supervision of an advisor may be appropriate. This notice stated that “FINRA requires member firms to establish and maintain supervisory systems for each of their associated persons and to test and verify annually that they have established reasonable procedures, including procedures for heightened supervision of associated persons, where necessary.”
In May at FINRA’s Annual Conference there was a discussion regarding the criteria FINRA uses to identify high-risk activity. This discussion noted that FINRA is looking for:
Several times this year FINRA has stressed the importance of “heightened supervision for high-risk brokers”. This should be one of the top priorities for your firm.
Do you have WSPs addressing these issues?
Are they causing you additional time, work, documentation, strain, and monitoring for your supervision department?
Our Eagle Eye application has an innovative “Heighten Supervision Mode”. The flexibility of this application empowers you to monitor your advisors at a variety of levels. For those that push the envelope a heightened level of supervision may be required. Eagle Eye will dig deep and with “Eagle Eye” precision discover and notify you of your advisors’ online presence.
Eagle Eye allows you to customize your supervisory approach without worry, and without additional charges or fees. Contact us today for your personalized demo and we will show you how our “Heightened Supervision Mode” will benefit your firm.
Did you read FINRA’s news release on October 1, 2018, entitled “FINRA Announces Plan to Consolidate Examination and Risk Monitoring Programs”? (Read the full-text news release)
FINRA President and CEO Robert W. Cook said, “By directing our expertise and resources in a more tailored way, we will become more effective at examining for compliance.”
Bari Havlik, who is overseeing this new program said, “Implementing a unified program structure will help make us a more agile and risk-focused regulator.”
So what does this mean for you as a supervisor?
This is a potentially massive shift in focus when it comes to FINRA exams and while it’s early, it appears that exams will now be more comprehensive with a wider area of focus than has been done in the past. Instead of focusing on only trading compliance or financial compliance, exams will likely be broader in nature. This new program is likely to zero-in on the supervision processes your firm has in place beyond the focused scope you’ve been used to.
This consolidation will force firms to dig a deeper into their WSPs and supervision processes including an examination of how they supervise the web.
We have over 15 years of experience in providing leading-edge compliance and web supervision software applications and website monitoring and archiving solutions for the financial industry.
Contact us today. Tell us your concerns when it comes to your “Risk Monitoring Programs” and we will share with you the solutions SiteQuest Technologies has developed for the financial industry.
Recently the Division of Securities, Utah Department of Commerce fined two credit unions and a licensed broker-dealer for failing to supervise the advisors working within the credit unions. (read the full report)
These credit unions are not registered broker-dealers or investment advisors. They entered into a networking agreement with a third-party broker-dealer to provide securities brokerage services to their credit union customers through registered representatives. In this case, the parties involved were not closely monitoring the actions and communications of these advisors with regards to how the advisors and the credit unions branded these services. The “lines were being blurred” and it was not clearly disclosed that these advisors worked for the third-party investment service provider, and not for the credit unions.
The emails, marketing materials, communications in print and electronic were not being supervised and in the view of the regulator, causing confusion with customers being misled. As a result, the broker-dealers and the credit unions were fined $750,000.
FINRA and the SEC are not the only regulatory agencies requiring firms to monitor their advisors. Each state has their own division of securities regulators.
Have you entered into a third-party agreement with another company to provide security brokerage services to their clients? Do you have advisors that are working in the facilities of these partners?
The biggest question of all is, “Are you sufficiently monitoring your advisors and their online presence?”
The use of our Eagle Eye application would have identified where the broker dealers’ presence was online such as social media, blogs, online articles, Yelp, YouTube and more, allowing you to review each URL. Our SQWatcher application would have alerted you to any changes on their websites ensuring that your supervision department could review and approve wording changes before they go live on the web.
We’d love to tell you more. Contact SiteQuest Technologies today to see how our applications can aid in your supervision responsibilities, saving you time and lowering your risk.
I’M SURE I HAVE SOME COMPLIANCE GAPS, BUT DON’T KNOW WHERE TO START...
It can be very challenging for financial firms to search, monitor, and document their advisor's web presence and registered websites without interrupting day-to-day business demands and operations. Yet failure to do so can leave exposed compliance gaps unaddressed and open your firm up to fines and disciplinary actions from regulatory agencies. Common compliance gaps often include improperly documented or improperly enforced policies and procedures, insufficient evidence of a WSP, undisclosed OBAs and social media accounts, as well as rogue advisor websites. Many firms know that they have gaps, but they don’t know where to start.
FINRA publishes a monthly disciplinary report with actions and fines against firms and individuals. One of the most common fines involves undisclosed OBAs. Currently, many firms work on the “honor system” with hopes that their employees with be completely honest and disclose everything required. Unfortunately, this honor system doesn’t always work. How are you to find out if your advisors have an undisclosed OBA? That is where Eagle Eye can help you close this gap with our deep web searching technology that quickly cut through the clutter of the web and bring to your attention relevant results when monitoring your registered reps.
Do you know if your advisors have disclosed all of their social media accounts? In a recent random sampling of 10 employees from a prospective client, our Eagle Eye solution found serious violations with three of the advisors including several OBAs and social media accounts that were never disclosed. This is a typical compliance gap for many firms. Is this one your firm is facing as well?
Are you sure that your firm is monitoring all of your advisors online advertising? Do you have a process in place that is easy to demonstrate to a regulator? Do you even know if they are producing advertising that you are unaware of? This could be another compliance gap your firm is facing.
In additiona to all of the supervision regulations, you need to prove that your firm has WSPs in place to help document all of the actions your firm is taking to monitor web presence. For many firms, this turns into another compliance gap they need to address.
You have a broker-dealer responsibility to monitor every website that your advisors' utilize for business purposes. Many times, advisors want to have their own website to help them stand out among the thousands of other financial advisor websites out there. How are you monitoring these websites? Are you notified of every change automatically so that it can be approved? If not, here is another compliance gap you might be facing. Recently there has been an increase in fines imposed by FINRA regarding website monitoring. Just like this fine imposed just a few months ago. SiteQuest Technologies’ SQWatcher program is an easy to use solution that will quickly help you fill this gap at a fraction of the cost of a fine.
Then to complete all of this monitoring you need to document all of your findings in an organized manner. Many times this is the last step in the compliance process and yet it can become one of the largest compliance gaps for a firm. Our automated documentation features found as part of our programs are detailed and searchable. We provide you with all of the information you need to respond to a regulator.
SiteQuest Technologies offers programs, support, and experience to help you bridge these gaps and respond to a regulator. A firm that is able to demonstrate compliance with tangible evidence will mitigate risks, such as costly regulatory fines, and be better prepared for unannounced visits from regulatory agencies.
Contact us today and talk to us about any gaps you need help addressing.
About James Cella
James Cella is the President of a growing and innovative compliance technology provider called SiteQuest Technologies. James is a customer-centric individual and focuses on building and sustaining positive and lasting relationship with his clients and partners. James and his family are "super fans" of Utah Football and have attended nearly every home game since 2002. Go Utes!