Search results

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

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.

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.

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

The purpose of this paper is to describe the exposure and the responsibilities of a broker‐dealer's senior management under NASD's and the NYSE's new rules, emphasizing a regular review of supervisory and compliance systems.

Describes new rules, contained primarily in NASD Rules 3010, 3012, and 3013 and amendments to NYSE Rule 342, and the SROs' intentions underlying those rules; provides additional regulatory guidance on privilege issues related to CEO/CCO meetings and reports, documentation of compliance with the new rules, periodic review of office category designations, specific requirements for “offices of convenience,” and procedures to ensure up‐to‐date identification of producing managers; assesses the potential increase in exposure for CEOs, CCOs, and others under the new rules.

Both the NASD and the NYSE have made clear by their establishment of the new supervisory framework and in guidance to members that they expect increased attention to maintaining adequate compliance and supervisory systems at the highest levels of their member organizations.

Conveys an important message concerning the need for CEOs and CCOs to become increasingly involved in compliance reviews and knowledgeable about supervisory systems.

To explain FINRA’s new 529 Plan Share Class Initiative, which encourages broker-dealers to self-report violations.

This article provides an overview of 529 plans, the various fee structures of the underlying investment funds, and guidance that broker-dealers should tailor their recommendations to the needs of the individual customer. The article discusses FINRA’s initiative for broker-dealers to self-report if they have violations in this area. It describes various supervisory failures brokerage firms may experience in connection with recommending 529 plans, eligibility for the self-reporting initiative and benefits of self-reporting.

This FINRA initiative provides an opportunity for firms to reflect on their supervisory systems and provide restitution to harmed customers. It also provides relevant fee-based investment information to customers.

529 plans are valuable tax-advantaged tools to encourage saving for the future educational expenses of a designated beneficiary. If brokerage firms lack reasonable supervisory procedures to recommend appropriate investments based on the length of the investment horizon, this FINRA initiative provides a unique and limited opportunity for firms to assess their supervisory systems and procedures governing 529 Plan share-class recommendations, to identify and remediate any defects, and to compensate any investors harmed by supervisory failures, while possibly avoiding fines for such conduct.

Expert guidance from experienced financial services regulatory and public finance lawyers.

In light of the sea change brought about by advancing technology in the way broker‐dealers communicate with clients, this article is a timely discussion of the current federal and self‐regulatory organization (SRO) requirements for a broker‐dealer's supervision of its employees' electronic business communications. Forms of communication, and the regulatory guidelines covering them, include e‐mail, off‐premises messages, group email, web site content, hyperlinks to other home pages, and chat rooms.

This paper aims to critically examine the European Union’s legislative initiative to establish an Anti-Money Laundering Authority (AMLA), which will introduce union-level supervision and provide support to national supervisors in the field of anti-money laundering and countering the financing of terrorism (AML/CFT), as well as to financial intelligence units (FIUs) in European Union (EU) member states. The paper discusses why this initiative was deemed necessary, which are the key objectives, rules and principles of AMLA and which challenges and opportunities will emerge as AMLA becomes operational.

This paper draws on reports, legislation, legal scholarship and other open-source data on the EU legislative initiative to establish a new AMLA.

AMLA will provide a comprehensive framework for EU-level AML/CFT supervision and for cooperation among FIUs. If all organisational challenges are properly addressed, the new authority will significantly enhance the EU’s ability to tackle money laundering and terrorism financing.

To the best of the author’s knowledge, this study is one of the first to examine the mission, governance and supervision mechanisms of the EU’s AMLA, as well as the challenges and opportunities associated with its functioning.

This paper aims to provide a methodology for designing and conducting solvency stress tests, under the standardised approach as per IFSB-15, including the establishment of macro-financial links, running scenarios with variation of assumptions and stress scenario parameters; apply and illustrate this methodology by providing a stylised numerical example through a tractable Excel-based framework, through which Islamic Commercial Banks (ICBs) can introduce additional regulatory requirements and show that they would remain in compliance with all capital requirements after a moderate to severe shock; and identify the potential remedial actions that can be envisaged by an ICB.

The paper uses the data of the one of the groups to which certain amendments and related assumptions are applied to develop a stylised numerical example for solvency stress-testing purposes. The example uses a Stress Testing Matrix (STeM; a step-by-step approach) to illustrate the stress-testing process. The methodology of the paper uses a two-stage process. The first stage consists of calculating the capital adequacy ratio (CAR) of the ICB using the IFSB formulae, depending on how the profit sharing investment account (PSIA) are treated in the respective jurisdiction. The second stage is the application of the stress scenarios and shocks.

Taking into account the specificities of ICBs such as their use of PSIA, the results highlighted the sensitivity of the CAR of an ICB with respect to the changes in the values of alpha and the proportion of unrestricted PSIA on the funding side. The simulation also indicated that an ICB operating above the minimum CAR could be vulnerable to shocks of various degrees of gravity, thus bringing the CAR below the minimum regulatory requirement and necessitating appropriate remedial actions.

The paper highlights various implications and relationships arising out of stress testing for ICBs, including the vulnerability of an ICB under defined scenarios, demanding appropriate immediate remedial actions on future capital resources and capital needs. The findings of the paper provide a preliminary discussion on developing a comprehensive toolkit for the ICBs similar to what is developed by the International Monetary Fund Financial Sector Assessment Programme.

This paper focuses on the gap with respect to the stress testing of capital adequacy. The main contribution of the paper is twofold. The first is the development of an STeM – a step-by-step approach, which provides a method for simulating solvency (i.e. capital adequacy) stress tests for ICBs; the second is the demonstration of the potentially crucial impact of profit-sharing investment accounts and the way they are managed by ICBs (notably the smoothing of profit payouts) in assessing the capital adequacy of the ICBs.

In this chapter, we explore the legal framework of AGMs in seven Member States (Austria, Belgium, Germany, France, Ireland, the Netherlands, and the United Kingdom) of shareholder decision-making rights. We find that, since only a small part of the decision-making rights is harmonized at the European level, there are numerous differences in shareholder rights among national laws. These decision-making rights are usually about the topics director (re-)elections, pay matters, share capital, amendments to articles of association, annual accounts, etc. To be able to conduct empirical research in the remaining chapters, we develop a categorization framework of 15 voting items.

To explain the SEC's focus on the appropriate use of fee-based accounts and disciplinary efforts to identify and prevent “reverse churning.”

Describes the quantitative analytics used in the SEC's Risk Analysis Examinations (RAEs) to identify reverse churning and other problematic behaviors, explains why the inappropriate use of fee-based or “wrap fee” accounts and “double charging” can be unfair to investment clients, summarizes prior NASD and FINRA guidance and enforcement regarding fee-based account supervision, and recommends account monitoring actions that firms should take to ferret out reverse churning.

The SEC's continuing interest in reverse churning and double-charging, and its use of new examination and investigation tools, together suggest that the future will see more investigations and enforcement actions against firms who place clients in a fee-based or “wrap-fee” account without having adequate supervisory procedures to determine and monitor whether such accounts are appropriate for those clients.

Monitoring accounts to ferret out reverse churning has proven difficult for firms in the past, since spotting inactivity might be more challenging than detecting excessive trades (known as “churning”). However, it seems that the SEC and its staff are enhancing their ability to identify and address these violations.

Practical advice from experienced financial services lawyers.

Seeks to present the personal viewpoint of the chairman of the Committee of European Banking Supervision (CEBS) on the opportunities for convergence afforded by the BASEL II capital framework.

Highlights some of the initiatives under way in CEBS that aim to make the above a reality in the EU.

The success of CEBS cannot be measured against the number of publications it produces but only on the impact of their implementation. More specifically, re BASEL II the real test will come with full implementation of the new framework, which will trigger full application of the CEBS agreements.

Coming from the chairman of CEBS, this paper carries great weight.

The aims of this paper are: first, to draw attention to the issues of displaced commercial risk (DCR) which arise as a result of the risk characteristics of profit‐sharing investment accounts (PSIA), the main source of funding of Islamic banks in most jurisdictions; and, second, to present a value‐at‐risk approach to the estimation of DCR and the associated adjustments in capital requirements.

The paper is based on empirical research into the characteristics of PSIA in practice, which vary to a greater or lesser extent from what one would expect them to be in principle, on an analysis of the capital adequacy and risk management implications that flow from this, and on an econometric formulation whereby the extent of DCR in Islamic banks may be estimated.

The findings are, first, that the characteristics of PSIA can vary from being a deposit like product (fixed return, capital certain, all risks borne by shareholders) to an investment product (variable return, bearing the risk of losses in underlying investments), depending upon the extent to which the balance sheet risks get shifted (“displaced”) from investment account holders to shareholders through various techniques available to Islamic banks' management. Second, the paper finds that this DCR has a major impact on Islamic bank's economic and regulatory capital requirements, asset‐liability management, and product pricing. Finally, it proposes an econometric approach to estimating DCR but report that individual Islamic banks generally lack the data needed to apply this approach, in the absence of which panel data for a population of Islamic banks may be used to estimate DCR for that population.

Empirically, the paper is thus limited by the lack of data just mentioned. Furthermore, the application of the proposed panel data approach has been left for future research.

The analysis of the issues and the development of the econometric model represent in themselves an original research contribution of some significance.