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Jacko Law Group Blog

FINRA Background Check Approved by SEC

The Securities and Exchange Commission (“SEC”) has approved The Financial Industry Regulatory Authority, Inc.’s (“FINRA”) proposed Rule 3110 (e). The rule was proposed last September and will go into effect July 1st, 2015. It will require broker-dealers to perform more extensive background checks on registered representatives when filing Form U-4 applications.

Rule 3110(e) will require firms to adopt written procedures to verify the accuracy and completeness of new hire information on their Form U-4’s. The written procedures must “specify the firm’s process for verifying the information in the Form U4”. Firms will also be required to ‘‘ascertain by investigation the good character, business reputation, qualifications and experience of an applicant before the member applies to register that applicant with FINRA and before making a representation to that effect on the application for registration.’’ At minimum firms must search all “reasonably available public records,” no later than 30 calendar days after the form is filed with FINRA. “FINRA recognizes that there will on occasion be circumstances beyond a firm’s control that prevent completion of the verification process within the 30-day window. In such cases, FINRA states, the firm’s procedures should provide that the verification be completed as soon as practical and the firm should document the basis for the delay.” FINRA also encourages firms to complete the verification process before it files the Form U-4.

Broker-dealers should review their Written Supervisory Procedures in conjunction with Rule 3110 (e) to ensure compliance with the new rule.

To learn more about the impact of additional supervisory rules that became effective December 1st, 2014 please read Jacko Law Group, PC’s September 2014, Legal Risk Management Tip What the New FINRA Supervisory Rules Mean For Your Brokerage Practices.

For more information on this and other related subjects, please contact us at or (619) 298-2880.

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Registered Invesment Adviser Suing Former Adviser and Ameriprise

When a registered investment adviser representative breaks away to form a new company or to work for a new employer, several issues may arise. The type of access the representative has to client lists and information should be considered. It is also prudent to have polices in place to protect business trade secrets. Hanson McClain. ("Hason McClain"), a RIA based in Sacramento, California is suing Thomas Chandler ("Chandler") and Ameriprise Financial Services Inc. ("Ameriprise"). The $1.6 billion advisor is suing based on claims that Chandler, their former adviser, stole client information and used it to solicit clients.

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HSBC’s Swiss Private Bank pays SEC $12.5 to Settle Charges Brought for Providing Unregistered Services to U.S. Clients

In a case that exemplifies the importance of proper registration prior to initiating operations, HSBC’s Private Bank (“HSBC”) settled the Security and Exchange Commission’s (“SEC”) charges for failing to register before providing cross-border brokerage and investment advisory services to U.S. clients. HSBC admitted wrongdoing, accepted a censure and a cease-and-desist order, and was ordered to pay the SEC $12.5 million.

According to the SEC order, relationship managers with the HSBC traveled to the U.S. to solicit clients, and established or maintained brokerage and investment advisory accounts. They also provided investment advice and sought securities transactions without being registered to provide such services. The Private Bank’s relationship managers were also not affiliated with a registered investment adviser or broker-dealer, but still communicated directly with U.S. clients through overseas mail and emails. According to the SEC, HSBC began providing these advisory and brokerage services in the U.S. more than 10 years ago and during that time gained 368 U.S. client accounts and received approximately $5.7 million in fees.

While implemented compliance initiatives, their efforts to prevent registration violations ultimately failed because their compliance initiatives were not effectively implemented or monitored,” according to Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.

While some argue the impetus for the investigation by the SEC of the HSBC was to further Washington’s crackdown on the secrecy of Swiss banking practices; it also exemplifies the importance of proper registration. Investment advisory and broker dealer firms need to remember that registrations needs to occur prior to performing any such activities and that a firm’s registration status may change following a merger or acquisition, change in ownership or even a change in corporate entity structure. It is also vital that all individuals of such firms be properly registered should their roles warrant such registrations. Determining when registration is required and how certain events effect registration at both the firm and individual levels is sometimes difficult and a matter of facts and circumstances. It is recommended that you consult an attorney should you have any questions regarding such issues.

For more information on this and other related subjects, please contact us at or (619) 298-2880.

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