SEC’s Gallagher fears compliance violations at advisers are going undetected

One of the SEC’s top members, Daniel Gallagher claims that investment advisers may be ripping off investors and getting away with it. Registered Investment Advisers outnumber brokers 3:1, yet only 9% of Registered Investment Advisers are annually inspected by the SEC. He fears that many compliance violations are going undetected due to a lack of oversight. Dodd-Frank was supposed to give FINRA oversight of Registered Investment Advisers but the verdict is still out on that issue. In the meantime Registered Investment Advisers could be swindling investors at an amount greater than or equal to brokers, because there is no SRO routinely examining them.

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Advisers scramble as firms trim overseas business

An increasing number of advisory and brokerage firms are starting to cease service to overseas investors. Although there is a significant amount of wealth in countries all over the world, different laws and markets make it difficult for firms to operate in those countries. Brokers & advisors are more likely to caught up in and international financial crimes when dealing overseas. Crimes such as money laundering, tax evasion and even terrorism are more abundant when servicing international clients. The overseas market has become too costly and complicated for many firms who now want out.

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SEC officials seek clarity on compliance officers’ liability

Two prominent figures at the SEC called upon the agency to clarify whether CCOs can be held liable for the misdeeds of other employees. In a survey by Reuters, 53% of CCOs expect their liability to increase in 2014. CCOs fear that with the heavy amount of rules flowing from regulators, they will soon be held to the same legal standard as managers at their firms. If they are found to be more liable, CCOs will find themselves being scrutinized for “failure to supervise” if an employee violates securities laws. The issue at the moment only pertains to CCOs at Broker-Dealer firms, not Registered Investment Adviser firms.

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Financial regulators don’t agree on Wall Street mea culpas

FINRA has yet to follow the SEC’s new policy which states that some violators should be forced to admit wrongdoing. FINRA maintains that its ability to suspend and bar members already displays a strong message to the financial community. FINRA tends to deal more with bookkeeping, commission, and supervision violations, while the SEC deals with large scale schemes that create large losses. Since the volume of FINRA compliance violations is higher due to the nature of compliance violations, it may be excessive to try to get all violators to admit wrongdoing.

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