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Article
Publication date: 1 April 1996

MARY ANN GADZIALA

The examination of broker‐dealers is an integral part of the United States Securities and Exchange commission's overall responsibility to enforce securities laws, protect…

Abstract

The examination of broker‐dealers is an integral part of the United States Securities and Exchange commission's overall responsibility to enforce securities laws, protect investors, and ensure the maintenance of fair and orderly markets. This programme continues to evolve to keep pace with dynamic market developments. This paper provides an overview of the broker‐dealer examination process, and discusses several new developments in the examination programme. Particular focus is directed to the oversight of internal controls and risk management, and review of sales practices and supervisory procedures. Finally, there is a discussion of efforts undertaken to coordinate examinations by various state, federal and self‐regulatory authorities.

Details

Journal of Financial Regulation and Compliance, vol. 4 no. 4
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 1 January 2003

Denise S. Saxon and Beth D. Kieswetter

Late last year, the New York Stock Exchange (“NYSE”) and the National Association of Securities Dealers (“NASD”) proposed rule changes designed to strengthen the…

Abstract

Late last year, the New York Stock Exchange (“NYSE”) and the National Association of Securities Dealers (“NASD”) proposed rule changes designed to strengthen the requirements relating to supervision and internal controls. Through these rule proposals, the NASD and NYSE appear to be emphasizing the need for brokerage firms to have in place internal controls separate and distinct from supervisory systems. In speeches, the staff of the U.S. Securities and Exchange Commission (“SEC”) also has emphasized that internal controls are integral to a brokerage firm’s operations. But, where did the concepts of “supervision” and “internal controls” come from? How has the concept of “internal controls” evolved in the brokerage industry? Do the NYSE and NASD proposals change the substantive supervisory obligations of broker‐dealers? What steps can brokerage firms take now to prepare for, and respond to, regulatory scrutiny of their systems for supervision and internal controls? This article explores these issues.

Details

Journal of Investment Compliance, vol. 3 no. 4
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 July 2004

Harry S. Davis and Mary F. Alestra

Conventional wisdom dictates that if you represent a corporate entity (or even a senior corporate official) involved in a securities or other regulatory investigation …

Abstract

Conventional wisdom dictates that if you represent a corporate entity (or even a senior corporate official) involved in a securities or other regulatory investigation ‐ whether by the U.S. Securities and Exchange Commission, U.S. Department of Justice, U.S. Attorney’s Office, Commodities Futures Trading Commission, New York Stock Exchange, National Association of Securities Dealers or one or more of the state attorneys general or other federal or state regulators ‐ it is important to cooperate fully in the investigation, even if that means “confessing” to corporate wrongdoing. Indeed, there are many benefits to cooperation, such as potentially avoiding criminal prosecution or an enforcement proceeding altogether or negotiating reduced penalties. And for regulated industries or regulated entities, there may be no choice but to provide full cooperation in order to avoid making an enemy of your regulator. But there are important potential pitfalls as well to cooperating with governmental or self‐regulatory investigations ‐ pitfalls that sometimes outweigh the benefits of cooperation. These potential pitfalls include bringing problems to the government’s attention about which it might not learn otherwise, or strengthening the government’s case against your client by doing the regulators’ work for them, such as by marshalling the evidence against your client for use by the regulators. And more and more, regulators are requiring entities to waive the protections of the attorney‐client privilege and work‐product doctrine as one of the prices you need to pay to be treated as a cooperator. If a regulatory authority insists on a privilege waiver, any documents turned over to the agency also may be available to potential third‐party litigants, such as the class‐action bar, or other government entities. In fact, the regulatory agency itself may use the formerly privileged materials to support a complaint against your client. Because of these potential pitfalls, the cooperation road may resemble a minefield at times, with the client one wrong step away from disaster. For that reason, it is critical for counsel to avoid reflexively choosing to cooperate in a regulatory investigation aimed at his or her client. Although cooperation may turn out to be the right approach to many regulatory investigations, each situation must be analyzed based upon its own individual facts so that the benefits of cooperation can be balanced appropriately against the pitfalls before making an informed decision as to what is best for the client in any particular circumstance.

Details

Journal of Investment Compliance, vol. 5 no. 3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 July 2005

Securities Industry Association, Compliance and Legal Division

To discuss the scope and limits of the compliance department's responsibilities in securities firms.

Abstract

Purpose

To discuss the scope and limits of the compliance department's responsibilities in securities firms.

Design/methodology/approach

Describes the background to establishing stand‐alone compliance departments; the organizational structure of compliance departments; typical compliance functions; how the compliance department coordinates with business units, senior management, internal audit, and risk management; the distinction between a firm's responsibility to comply with applicable laws and regulations and the role of the compliance department; the distinctions between responsibilities of the compliance department and those of supervisors and senior management; and emerging regulatory trends impacting the compliance department.

Findings

New business activities and new regulations have placed increased demands on, and scrutiny of, compliance activities over the past few years. Regulators are looking to compliance departments to play an increasingly important role in identifying proactively and responding to potential wrongdoing.

Originality/value

Explains the critical importance of a well staffed, experienced, and adequately funded compliance department.

Details

Journal of Investment Compliance, vol. 6 no. 3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 July 2005

Amy N. Kroll and Anders W. Franzon

To provide an overview of the new uniform definition of “branch office” and to discuss how that definition will influence broker‐dealer supervisory programs.

Abstract

Purpose

To provide an overview of the new uniform definition of “branch office” and to discuss how that definition will influence broker‐dealer supervisory programs.

Design/methodology/approach

Discusses the new definition of “branch office”, describes new NASD and New York Stock Exchange supervisory control system requirements and supervisory requirements for branch offices and other locations, and suggests guidelines for developing a branch office or remote office supervisory program.

Findings

In the current regulatory environment, no broker‐dealer should overlook regular and rigorous attention to supervision of branch offices and other remote locations. And in light of the new definition of a branch office, each broker‐dealer must include in its review and analysis a close evaluation of how the broker‐dealer supervises every location where broker‐dealer personnel engage in activities on behalf of the broker‐dealer and must document that evaluation.

Originality/value

Important reference for broker‐dealers’ branch office supervisory programs that underscores the need to pay proper attention to remote locations.

Details

Journal of Investment Compliance, vol. 6 no. 3
Type: Research Article
ISSN: 1528-5812

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Article
Publication date: 1 October 2005

Jeffrey C. Morton

To provide the investment management industry with a summary of the expectations of the Securities and Exchange Commission (SEC)'s examination staff with regard to the…

Abstract

Purpose

To provide the investment management industry with a summary of the expectations of the Securities and Exchange Commission (SEC)'s examination staff with regard to the development of a culture of compliance.

Design/methodology/approach

A review of certain elements identified by an SEC staffer that are necessary for a firm to have a strong and effective control environment and culture of compliance was carried out. The article explores a firm's strategic vision or “tone at the top,” risk identification, establishment of controls, documentation, accountability and self reporting, and cooperation.

Findings

Confirmation that a firm's success in establishing a culture of compliance is difficult to prove and harder to document. However, an understanding of the concept of developing a compliance culture can allow compliance officers to demonstrate a commitment to ethical and compliant practices.

Originality/value

The SEC's new inspection program evaluates each firm's commitment to compliance and moral and ethical practices. This article provides a basic understanding of the minimum expectations of the SEC's inspection staff.

Details

Journal of Investment Compliance, vol. 6 no. 4
Type: Research Article
ISSN: 1528-5812

Keywords

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