Tag Archive for: finra

The Impact of PCAOB and How ACI Can Help Reduce Audit Fees

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The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 designated the Public Company Accounting Oversight Board as the regulatory agency responsible for overseeing the audits of all broker dealers registered with the Securities and Exchange Commission. Over the past 7 years, the PCAOB has performed extensive reviews of audit files, scrutinizing independence, documentation procedures and the general effort put forth by the audit community to ensure the reports issued present an accurate, complete and fair representation of the financial position of each member firm.

In instances where the PCAOB has determined that the auditors failed to properly fulfill their responsibilities, fines have been levied and suspensions have been invoked against the audit firms. The severity of failing to establish and execute a near perfect audit program has created a perpetual fear that has pervaded the audit community and has resulted in many small audit firms opting to delist themselves from performing broker dealer audits.  For those audit firms who remain actively engaged, the level of due diligence to certify an audit, and the time commitment to ensure they are protected from the PCAOB, has resulted in significant fee increases within the industry.

For certain broker dealers, possession of customer funds and their obligation to the investing public, may legitimatize the scrutiny of PCAOB, as the overall objective of this legislation was to restore trust in the financial services sector. For the vast majority of broker dealers, who do not hold customer funds or often do not do business with the general public, the increased scrutiny and increased costs have resulted in undue hardship for minimal substantiated value.

While ACI does not have any ability to mitigate the audit requirement for our broker dealer clients, we have spent a considerable amount of time and effort to assist with alleviating the obligations of the broker dealer during this annual process. Our recent effort to convert the fiscal year end away from December 31st has been very successful.  Auditors are generally less busy during the off-calendar year-end, which has often resulted in broker dealers receiving a higher quality audit at a lower cost.  We have actively communicated with our contacts at FINRA and have repeatedly been successful in facilitating our goal of ensuring our broker dealer clients comply with their regulatory requirements in the most time efficient and cost effective manner possible.

If you would like to learn more about how ACI can help your firm with this process, please contact Jay Gettenberg at (212) 668-8700, extension 25 or email us at info@acisecure.com.

New FINRA CAB Rules

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Capital Acquisition Brokers (“CABS”) were created as a new FINRA Membership option after a long-standing battle in the industry to lessen the restrictions on limited purpose Broker Dealers. You can apply to be a CAB member at the onset of your new member application (assuming you meet the criteria per the rule) or you can apply to change your existing membership agreement.

The new rules define the term “capital acquisition broker” to mean any broker that solely engages in one or more of the following activities:

  • advising an issuer, including a private fund, concerning its securities offerings or other capital raising activities;
  • advising a company regarding its purchase or sale of a business or assets or regarding its corporate restructuring, including a going-private transaction, divestiture or merger;
  • advising a company regarding its selection of an investment banker;assisting in the preparation of offering materials on behalf of an issuer;
  • providing fairness opinions, valuation services, expert testimony, litigation support, and negotiation and structuring services;
  • qualifying, identifying, soliciting, or acting as a placement agent or finder, on behalf of an issuer in connection with a sale of newly-issued, unregistered securities to institutional investors (or, on behalf of an issuer or control person in connection with a change of control of a privately-held company)
  • effecting securities transactions solely in connection with the transfer of ownership and control of a privately-held company to a buyer that will actively operate the company, in accordance with the terms and conditions of an SEC rule, release, interpretation, or “no-action” letter that permits a person to engage in such activities without having to register as a broker or dealer.

A few of the benefits of being a CAB member, include, but are not limited to, being relieved of the obligations to conduct an annual compliance meeting, obtaining an annual written CEO certification on the effectiveness of the firm’s compliance program, establishing and maintaining a business continuity plan (“BCP”) and having fidelity bond coverage. CABs must still implement a written anti-money laundering (“AML”) program but they may conduct the independent testing for AML compliance every two years (instead of annually).

While the new CAB framework appears to be de-regulating the industry and adding a more risk based approach to things, it is not clear how many firms will benefit (other than very limited private placement firms). It is hard to gauge who will be eager to jump on this bandwagon due to the limitations on who they can market their investments to.

For a complete set of CAB rules please see the attached pdf:

pdf SR-FINRA-2015-054-amendment-2.pdf

If you would like to learn more about how the CAB rules impact your small broker dealer from ACI’s perspective, please contact Jay Gettenberg at (212) 668-8700, extension 25 or use our web contact form.

FINRA Notice 16-09

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Summary

Effective March, 2016

Shortening the settlement cycle from trade date plus three business days (T+3) to trade date plus two business days (T+2) for U.S. secondary market transactions in equities, corporate and municipal bonds, unit investment trusts, and financial instruments composed of these products is an industry- led initiative. To support this industry-led initiative, FINRA seeks comment on proposed amendments to FINRA rules relating to the settlement cycle. FINRA proposes to adopt necessary rule changes in a manner and timeline that is consistent with the Securities and Exchange Commission (SEC) and other self-regulatory organizations (SROs) in an effort to provide the regulatory certainty necessary for an efficient transition.

See the attached pdf, for the full text:

pdf FINRA_Notice_16-09.pdf

FINRA Notice 16-08

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Summary

Effective February, 2016.

FINRA’s review of securities offering documents has revealed instances in which broker-dealers have not complied with the contingency offering requirements of Rules 10b-9 and 15c2-4 under the Securities Exchange Act of 1934 (SEA). FINRA is publishing this Notice to provide guidance regarding the requirements of SEA Rules 10b-9 and 15c2-4 and to remind broker-dealers of their responsibility to have procedures reasonably designed to achieve compliance with these rules.

See the attached pdf, for the full text:

pdf FINRA_Notice_16-08.pdf