Broker Dealer Regulatory Digest

Editor's Note
The following document provides a monthly roundup summarizing enforcement actions, guidance, rulemakings, and other public statements from the Consumer Financial Protection Bureau, the Federal Trade Commission, and the occasional state regulator regarding the prohibition on unfair, deceptive, or abusive acts or practices (UDAAP) in the marketplace for consumer financial services.

Regulatory Developments

• Securities and Exchange Commission. Registered Index-Linked Annuities (RILAs). SEC issued a proposed rule (see fact sheet) on tailored disclosure requirements and offering processes for offerings of registered index-linked annuities. The deadline for comments is 30 days after publication in the Federal Register. Separately, Chair Gensler and Comm'r. Uyeda provided statements in support of the proposal. Additionally, the agency also published a working paper on RILAs.
• Securities and Exchange Commission. Investment Company Act. SEC adopted a final rule (see fact sheet) amending the Investment Company Act "Names Rule," which addresses fund names that are likely to mislead investors about a fund's investments and risks. The rule is effective 60 days after publication in the Federal Register. Separately, Chair Gensler, Comm'r. Crenshaw, Comm'r. Lizárraga, and Comm'r. Peirce provided statements in support of rulemaking, while Comm'r. Uyeda dissented.
• Securities and Exchange Commission. Broker Dealer. SEC published updates to Compliance and Disclosure Interpretations for Reg S-K.
• Commodity Futures Trading Commission. No-Action Letter (NAL). CFTC's Division of Market Oversight issued an NAL that extends the current no-action position for reporting obligations under the ownership and control reports final rule through September 30, 2024. Additionally, Comm'r. Mersinger provided a statement supporting the action, but was critical of the issuance of no-action relief.

Enforcement and Litigation

• Securities and Exchange Commission & Commodity and Futures Trading Commission. Off-Channel Communications & Recordkeeping. SEC announced charges against a number of broker-dealers, duly registered broker-dealers and investment advisers, and two affiliated investment advisers (see #1, #2, #3, #4) for widespread and longstanding failures to maintain and preserve electronic communications. Additionally, the agency filed charges against two credit rating agencies for alleged longstanding failures to preserve electronic records, including off-channel communications on personal and work-issued devices. Separately, the CFTC issued an order filing and settling charges against a company and its affiliate for failing to maintain and preserve records that were required to be kept under agency recordkeeping requirements, and for failing to diligently supervise matters related to their businesses as agency registrants. Comm'r Johnson and Comm'r. Goldsmith Romero gave statements in support of the action.
• Securities and Exchange Commission. Reporting. SEC announced charges against six officers, directors, and major shareholders of public companies (#1, #2, #3, #4, #5, #6, #7, #8, #9, #10 and #11) for allegedly failing to timely report information about their holdings and transactions in company stock.
• Securities and Exchange Commission. Disclosures. SEC charged a telecom company with allegedly failing to disclose material information about unsupported adjustments the company made in several agency filings.
• Securities and Exchange Commission. Disclosures. SEC announced that a firm and its principal agreed to settle charges related to their alleged failure to disclose the misuse of proceeds raised from investment advisory clients and for the firm's alleged failure to implement reasonably designed written policies and procedures concerning the disclosure of conflicts of interests.
• Financial Industry Regulatory Authority. TRACE Reporting. FINRA issued an order against a firm to resolve allegations regarding alleged inaccurate TRACE reporting in violation of FINRA Rules 6730(d), 2010, and 3110.
• Commodity Futures Trading Commission. Fraud. CFTC announced that a federal court entered a consent order under Sec. 6(c)(1) of the Commodity Exchange Act imposing a permanent injunction against an individual regarding allegations that they defrauded their former employer by misappropriating its confidential information to enter noncompetitive trades against it. Separately, Comm'r. Pham dissented from the ruling, citing a material omission of the applicable legal precedent.
• Commodity Futures Trading Commission. Futures Commission Merchants (FCMs). CFTC issued an order filing and settling charges against a registered FCM for allegedly failing to diligently supervise the handling of commodity interest accounts, which resulted in incomplete and inadequate oversight of its surveillance of customers' trading activity for disruptive trading over a four-year period.

Michael Buckalew is a regulatory analyst with Davis Wright Tremaine LLP.