Broker-Dealer Compliance
Our Federal Securities Lawyers Assist Broker-Dealers with All Aspects of Compliance
Broker-Dealer Compliance Team Lead
Former DOJ Trial Attorney
Contact John directlyFor broker-dealers in the securities industry, compliance needs to be a priority. Noncompliance with federal securities laws, SEC regulations, or FINRA Rules can have severe consequences for broker-dealers—up to and including criminal prosecution in some cases.
So, what does it take to maintain broker-dealer compliance? While this is a simple question, the answer is far from straightforward. Broker-dealer compliance has numerous aspects, and individual brokers and their firms must take several proactive steps to maintain compliance on an ongoing basis.
Comprehensive Broker-Dealer Compliance Backed By Highly Experienced Attorneys
At Oberheiden P.C., we provide comprehensive broker-dealer compliance services backed by highly experienced attorneys. Our team includes former U.S. Attorneys and Assistant U.S. Attorneys who previously prosecuted securities law violations at the U.S. Department of Justice (DOJ) as well as former federal agents who spent their government careers investigating securities fraud and other white-collar crimes. As a result of this experience—in addition to our experience representing broker-dealers—we are well-versed in all aspects of broker-dealer compliance, and we are able to efficiently provide deep insights to our clients.
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Understanding the Breadth and Depth of Broker-Dealers’ Compliance Obligations
Broker-dealers’ compliance obligations exist under numerous sources of legal authority. At the federal level, this includes a multitude of federal laws—from the Securities Act of 1933 and Investment Advisers Act of 1940 to the Dodd-Frank Act of 2010—as well as an extraordinarily long list of SEC regulations. Broker-dealers are subject to FINRA’s rules as well, and all 50 states have adopted securities laws that apply to broker-dealers operating within their borders.
But broker-dealers’ compliance obligations also extend far beyond the securities industry. For example, broker-dealers are subject to anti-money laundering (AML) compliance obligations, and they must address compliance obligations in the areas of cybersecurity and consumer protection as well. As a result, establishing and maintaining compliance requires a comprehensive and multi-faceted approach, and broker-dealers must work with experienced legal counsel to ensure that they are able to maintain compliance on an ongoing basis.
Our compliance services for broker-dealers cover all securities and non-securities-related areas. We regularly advise broker-dealers on matters such as:
- Advertising and marketing practices
- “Associated person” and employment compliance
- Anti-money laundering (AML) compliance
- Clearing arrangements
- Corporate compliance, meetings, and recordkeeping
- Cryptocurrency and other digital assets
- Customer documentation and disclosures
- Cybersecurity
- Form BD, Form NMA, Form U-4, and Form U-5
- Handling customer complaints (including mandatory disclosure)
- Net capital requirements
- Outsourcing, referral relationships, and independent contractor agreements
- Recordkeeping
- Regulation Best Interests (Reg BI)
- SEC and FINRA registration
- SEC and FINRA reporting, disclosures, and requests for information
- SIPC membership
- State-level securities law compliance
- Trading and sales practices
- Use of alternative trading systems and platforms
This list is by no means exclusive. Rather, this is just a sampling of the diverse compliance-related issues that broker-dealers may encounter on a daily basis. To maintain compliance, broker-dealers must have a clear understanding of all applicable state and federal statutory and regulatory requirements, and they must implement policies, procedures, and protocols that address all of these requirements effectively within the context of their unique corporate structures and business operations.
Crucially, while many of these compliance areas are not strictly securities-related, they still fall within the SEC’s and FINRA’s enforcement jurisdiction. For example, FINRA provides “templates” and “checklists” for firms to assess their AML and cybersecurity compliance obligations, and the SEC often targets individuals and firms for AML and consumer protection-related violations as well. Additionally, FINRA and the SEC work closely with the DOJ, Federal Bureau of Investigation (FBI), Federal Trade Commission (FTC), Office of Foreign Assets Control (OFAC), and other federal authorities as well, and violations can often trigger inter-agency communications and broadscale enforcement activity.
How Our Lawyers and Expert Consultants Assist with Broker-Dealer Compliance
When it comes to broker-dealer compliance, we take a comprehensive and custom-tailored approach that focuses on addressing each client’s specific needs. No two broker-dealers’ compliance programs should be exactly alike. To help our clients avoid unwanted scrutiny from the SEC, FINRA, and other authorities (and to survive this scrutiny when necessary), we provide broker-dealer compliance services including:
1. Compliance Needs Assessment
For new and established broker-dealers alike, we conduct compliance needs assessments focused on ensuring that we have a comprehensive understanding of both (i) the scope of our client’s compliance obligations, and (ii) the effectiveness of any compliance policies and procedures that are already in place. Oftentimes, we find that broker-dealers have gross misconceptions of both of these issues. To conduct these compliance needs assessments, we outline our clients’ business operations, management protocols, IT systems, and other pertinent factors, and then we examine all of these factors in light of all pertinent sources of statutory and regulatory oversight.
2. Compliance Program Development
After assessing a broker-dealer’s compliance needs, our next step is to quickly get to work developing a custom-tailored compliance program. This includes drafting pertinent policies, procedures, and other necessary forms of documentation. We focus on making our compliance programs clear, pragmatic, and executable—so that our clients not only have the compliance documentation they need, but also have the ability to use their compliance documentation effectively.
3. Compliance Program Training and Implementation
For securities broker-dealers, simply having a compliance program is not enough. The SEC and FINRA both expect broker-dealers to proactively satisfy their legal and regulatory obligations on an ongoing basis. To this end, we also assist our clients with compliance program training and implementation. We conduct training programs for executives, managers, individual brokers, and other associated persons, and we work with broker-dealers’ IT departments and other operational areas to ensure that they carry out their compliance duties effectively.
4. External Broker-Dealer Compliance Management
Along with internal compliance management, external compliance management is critical for broker-dealers as well. This includes maintaining compliant relationships with vendors and other third parties, maintaining compliant relationships with customers, maintaining SEC and FINRA registrations in good standing, and various other aspects of compliance. From reviewing contracts to docketing deadlines and communicating with SEC and FINRA staff, we play an active role in ensuring that our clients do not inadvertently expose themselves to unnecessary scrutiny.
5. Compliance Auditing and Program Updates
Conducting periodic compliance audits is key to avoiding unnecessary scrutiny (and penalties) as well. At Oberheiden P.C., our lawyers and consultants conduct robust internal audits for broker-dealers of all sizes. Our broker-dealer clients use these audits to uncover any and all areas of compliance-related risk, and our lawyers and consultants work with our clients to implement compliance program updates as necessary.
FAQs: Establishing and Maintaining Comprehensive Broker-Dealer Compliance
What Are the Five Key Pillars of Compliance for Registered Broker-Dealers?
While broker-dealers have numerous compliance obligations, these obligations can be divided into five key pillars. Focusing on each pillar independently can help broker-dealers more efficiently assess their needs and implement policies and procedures designed to meet these needs in a way that will withstand scrutiny from the SEC and FINRA. The five key pillars of compliance for registered broker-dealers are:
- Registration-Related Compliance
- Securities Law and Regulation Compliance
- FINRA Rule Compliance
- Non-Securities Legal Compliance
- General Corporate Compliance
How Important Is Compliance for Registered Broker-Dealers?
Compliance is extremely important for registered broker-dealers in the United States. Non-compliance can trigger scrutiny from the SEC, FINRA, and other authorities, and this scrutiny can trigger administrative, civil, or criminal enforcement actions. Depending on the circumstances involved, enforcement actions can present risks for penalties ranging from fines to temporary registration suspension, and from permanent registration revocation to federal imprisonment.
How Can Registered Broker-Dealers Maintain SEC and FINRA Compliance?
Maintaining SEC and FINRA compliance requires an ongoing commitment to prioritizing compliance at all levels of the organization. Broker-dealers need to have—and follow—comprehensive compliance policies and procedures, and they must conduct periodic internal audits to assess the efficacy of their compliance efforts.
Do Broker-Dealers Need to Engage Outside Counsel for Compliance?
Broker-dealers should engage outside counsel for compliance—the risks are simply too great not to do so. Broker-dealer compliance is extraordinarily complex, and the consequences of non-compliance are severe. By working with experienced outside counsel, broker-dealers can manage compliance effectively, and they can ensure that they have the documentation they need to withstand SEC or FINRA scrutiny if necessary.
Why Should Broker-Dealers Choose Oberheiden P.C. for Compliance?
Oberheiden P.C. is a team of senior-level compliance lawyers and consultants who bring their experience to the table. As former DOJ prosecutors and federal agents, our lawyers and consultants have investigated and prosecuted numerous federal cases against broker-dealers. As compliance lawyers and consultants, we have worked with broker-dealers nationwide, and we have a well-established track record of helping our clients avoid unnecessary penalties.
Speak with a Senior Broker-Dealer Compliance Lawyer or Consultant in Confidence
If you need to know more about broker-dealer compliance, we invite you to get in touch. To speak with a senior lawyer or consultant at Oberheiden P.C. in confidence, please call 888-680-1745 or tell us how we can reach you online today.
