SDDco Perspective Newsletter

September 1, 2019 | Vol 12. Edition 1

Dear SDDco Clients and Colleagues: Our SDDco Perspective includes industry news, guidance, regulatory rule updates, deadlines, and other timely matters impacting brokers, advisors, fintech firms, taxpayers, investors, and their service professionals. The SDDco Perspective is made available on our website monthly at http://sddco.com/resources-newsletter.

FINANCIAL INDUSTRY & CRYPTOCURRENCY

Bryon Lyons


Bryon Lyons
CEO, SDDco Brokerage Advisors LLC

Swiss Regulator Approves First Two Blockchain Banking and Securities Dealer Firms

On August 26, 2019, the Swiss Financial Market Supervisory Authority (“FINMA”) issued, for the first-time, banking and securities dealers’ licenses to two “pure-play Blockchain service providers,” SEBA Crypto AG, registered in Zug, and Sygnum AG, registered in Zurich. In the press release, FINMA cited its technology neutral stance and published guidance on how it applies Swiss anti-money laundering rules to financial services providers operating on the Blockchain. The regulator also reiterated the Financial Action Task Force (“FATF”) guidance issued in June 2019 on financial services in the context of Blockchain technology, and its own guidance, issued in February 2019, addressing Payments on the Blockchain.

The final rule also sets the schedule for regular Consumer Price Index for All Urban Consumers (“CPI-U”)-based adjustments in the standard minimum investment amount, and conforming adjustments to the TEA minimum investment amount, every 5 years, beginning 5 years from the November 21, 2019 effective date.

FINMA Issues Licenses and AML Guidance re the Blockchain
CrowdFundInsider: FINMA Re-Affirms Stringent Approach to AML and Blockchain
FinTech News: Swiss Regulator Releases AML and Blockchain Guidance
Law360: Blockchain Firms Must Respect AML Law, Swiss Say


SEC Seeks a Better Way for Companies to Raise Capital

In mid-September 2019, the 90-day comment period for the concept release issued in mid-June by the Securities and Exchange Commission (“SEC”) will end. This release requests public comment from startups, entrepreneurs, and investors as to how the government agency can “simplify, harmonize, and improve” the way in which companies raise capital in the private and exempt public markets. Limitations on who can invest, how much can be invested, and other restrictions on the “exempt offering framework” are all open to comment and reassessment in this effort to assist the SEC as it seeks to “analyze and improve the complex system we have today,” as mentioned by SEC Chairman Jay Clayton.

SEC Concept Release on Harmonization of Securities Offering Exemptions
Law360: Investor Advocates Fear Looser Exemption Rules will Backfire
Investment News: SEC Exploring Access to Private Placements

FINTECH & CYBERSECURITY

Erin Furtado


Erin Furtado
Head of Marketing

CYBERSECURITY

SEC Investigating Data Leak at First American Financial Corp.

The SEC is investigating a website breach of more than 885 million personal and financial records that hit real estate title insurance company, First American Financial Corp. The breach happened due to a lack of authentication protocols required to view these personal and financial documents. Incidents like these are why financial institutions must adhere to cybersecurity regulations and periodically audit and report how they protect sensitive data.

Read More >

 

FINTECH

The Financial Sector Must Embrace Transparency in AI to Ensure Fairness

Financial institutions are increasingly using Artificial Intelligence to improve efficiency and productivity. However, because there is little transparency in how AI networks make decisions, organizations are at risk of inaccurate and duplicitous decisions. It is more difficult auditing AI decisions than auditing human decisions due to lack of expertise and data hygiene. Neural networks cannot reason outside of their ‘learning environment’ making it only as good as the data it was trained on. AI will need to shift from operating in a box to working according to human mind-mapping which provides more visibility of the decision-making process.

Read More >

SDDco CYBER
COMPLIANCE & SUPPORT OFFERING

  • Become compliant with all state and federal requirements including FINRA, NYDFS, SEC, etc.
  • Infrastructure Testing including Penetration Testing
  • Customized and Tested Policies and Procedures
  • Fully Managed Incident Response Coverage
  • Data Security Training
  • Vendor Due Diligence
  • Risk Assessments

Cybersecurity graphic

Speak with an SDDco consultant about how we can help you navigate the nuances of armoring your firm through SDDco Cyber.

COMPLIANCE & REGULATORY

Gary Fox


Gary Fox
Director

Proposed Rule Change to FINRA Rule 5130 (Restrictions on the Purchase and Sale of Initial Equity Public Offerings) and FINRA Rule 5131 (New Issue Allocations and Distributions)

In late July, FINRA proposed changes to Rules 5130 and 5131. Those changes, if adopted, would remove certain restrictions on initial equity public offerings and new issue allocations and distributions. According to FINRA, the proposed changes include:

    1. Incorporate the definitions of “family member” and “family client” under the Investment Advisers Act of 1940 into the definition of “family investment vehicle” under FINRA Rule 5130(i)(4);

    2. Exclude sovereign entities that own broker-dealers from the categories of restricted persons under FINRA Rule 5130(i)(10)(E);

    3. Exempt foreign employee retirement benefits plan that meet specified conditions from FINRA Rules 5130 and 5131(b) (Spinning);

    4. Provide alternative conditions for satisfying the foreign investment company exemption under FINRA Rule 5130(c)(6);

    5. Exclude offerings that are conducted pursuant to Regulation S under the Securities Act of 1933 and other offerings outside of the United States and its territories from the definition of “new issue” in FINRA Rules 5130 and 5131;

    6. Align FINRA Rule 5130(d) (Issuer-Directed Securities) with a similar provision in FINRA Rule 5131.01 (Issuer Directed Allocations);

    7. Exclude unaffiliated charitable organizations from the definition of “covered non-public company” in FINRA Rule 5131(e)(3); and

    8. Add an anti-dilution provision for purposes of FINRA Rule 5131(b), similar to the provision in FINRA Rule 5130(e) (Anti-Dilution Provisions).

You can read the full release and text of the rule changes here:

Read More >

 


 

Ross Marlin


Ross Marlin
Associate Director

FINRA Issues Regulatory Notice Regarding Regulation Best Interest

On August 7, 2019, FINRA issued a Regulatory Notice reminding members of the SEC’s adoption of Regulation Best Interest for broker-dealers that make recommendations to retail clients, as well as the new Form CRS that requires broker-dealers and advisers to provide retail customers with certain standardized “relationship summary” information.

The Notice reminds firms that they must comply with Regulation Best Interest and Form CRS by June 30, 2020 and discusses how FINRA and the SEC can assist firms with their implementation efforts.

Read more >


To learn more about how SDDco can help strengthen your firm’s compliance program, click here.

ACCOUNTING & TAX

Bob Fortino


Bob Fortino
Managing Partner

The IRS has Declared War on Cryptocurrency

The IRS is aggressively pursuing taxpayers that have undisclosed trading activity or illicit transactions using cryptocurrency. IRS stated that warning letters have been sent to 10,000 taxpayers and indictments will be following. The concern comes from the fact that Coinbase has 30 million crypto accounts but only a very small amount of taxpayers are reporting these accounts on their tax returns. Fans of cryptocurrencies criticize the IRS for lack of published guidance and the failure to exempt personal transactions.

Read More >

LEGAL

Casey Muller


Casey Muller
Director of Legal & Internal Compliance

FINRA to Reduce Frequency of Cycle Examinations for Small Firms with a “Clean Record”

Approximately 3,200 broker-dealers registered with FINRA are considered small firms, i.e. comprised of 150 registered staff members or less. Many of these small brokerage firms find it challenging to bear the burden of frequent increases in regulatory costs. However, a recent report suggests that FINRA has agreed to a procedural change that should relieve such firms. FINRA intends to lessen the frequency of cycle examinations for small broker-dealers with a “clean record.” Under the new proposal, such firms would be subject to review every four years, instead of every two to three years. Less reviews mean less expenses and less interruption.

Read more >

STAY COMPLAINT WITH HUMAN RESOURCES

Elizabeth Drivas


Elizabeth Drivas
Business Consultant, Paychex

Lactation Law

As of March 17th, 2019, New York City employers with four or more employees must implement a written lactation room accommodation policy. The policy must indicate that employees have the right to request a lactation room, identify the process outlined in the Administrative Code and provide the policy and process to all new and existing employees. The new law requires employers provide lactating employees with a sanitary "lactation room", which is not a restroom, and has, at minimum, the following:

  • an electrical outlet;
  • a chair;
  • a surface on which to place a breast pump and other personal items;
  • nearby access to running water; and
  • a refrigerator must be in "reasonable proximity" to the employee's work area.

If you would like help to stay compliant with HR laws and regulations or need your employee handbook redone to include new policies like this, reach out to our dedicated Paychex representative Elizabeth Drivas at (646) 228-5529. Click here for any additional questions.

IN THE SPOTLIGHT

Keep a look out for us at upcoming conferences!

NSCP National Conference

NSCP National Conference

Baltimore, MD | Oct 21-23, 2019

Register Now: https://national.nscpconferences.org

FINRA Small Firm Conference

Santa Monica, CA | Oct 23-24, 2019

Register Now: https://www.finra.org/industry/finra-small-firm-conference

SDDco Group makes this general information available for educational purposes only, the contents of which were not originated from SDDco. SDDco is not affiliated with any of the publishing persons or entities of the articles herein. The information provided should not be construed as legal advice. This email may constitute an advertisement under U.S. law.

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