SDDco Perspective Newsletter

August 2020

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

Bryon Lyons
CEO, Independent Brokerage Solutions LLC

Bryon Lyons

U.S. Closes Audit Loophole for Chinese Companies Listed on U.S. Exchanges

Earlier this summer in June, President Trump tasked a presidential working group of financial market regulators with a 60-day window to recommend to him actions the executive branch could take to curb certain Chinese corporate listings on U.S. exchanges. While China’s economic development and standard of living have risen significantly over the last few decades led by westernized Chinese companies listed on U.S. stock exchanges, the Chinese government has not permitted those same Chinese companies or their mainland audit firms to be transparent to the U.S. marketplace. Mainland audit firms (and even mainland offices of U.S. audit firms) have traditionally been prohibited from providing the U.S. Public Company Accounting Oversight Board (“PCAOB”) with the paperwork it requires to conduct audit inspections of companies listed in the U.S., effectively allowing these U.S. listed companies to defy the regulatory requirements of U.S. securities regulators to inspect public companies. The recent accounting scandal involving Luckin Coffee has further exacerbated regulators’ and the government’s concerns.

The Trump administration has issued its recommendation to ban Chinese companies that do not comply with U.S. accounting standards from listing on U.S. stock exchanges, and would force currently listed Chinese companies to delist from U.S. stock exchanges unless regulators get access to their audits.

FT – Trump Team Outlines Plan to Crack Down on China
Bloomberg – U.S. Moves to Tighten Chinese Company Disclosure Requirements
SCMP – China brings Out the Big Stick on Luckin’s $300MM Fraud

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SDDco CYBER
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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
Director

Gary Fox

The SEC Announces A New Exam Group

The Securities and Exchange Commission announced on July 28, 2020 the creation of the Event and Emerging Risks Examination Team (EERT) in the Office of Compliance Inspections and Examinations (OCIE). According to the SEC, “The EERT will proactively engage with financial firms about emerging threats and current market events and quickly mobilize to provide expertise and resources to the SEC's regional offices when critical matters arise.” The EERT’s focus will be on implementing OCIE exam priorities and is tasked with ensuring, through examinations and monitoring, that “firms are better prepared to address exigent threats, incidents, and emerging risks.”

The EERT also has an important role in responding to “significant market events that could have a systemic impact or that place investor assets at risk, such as exchange outages, liquidity events, and cyber-security or operational resiliency concerns.” As of yet, there is no guidance on how to pronounce the acronym.

You can read the full release here.

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COMPLIANCE & REGULATORY

Ross Marlin
Associate Director

Ross Marlin

SEC Issues Ransomware Alert

On July 10, 2020, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert focused on the increasing threat to financial firms posed by ransomware attacks. OCIE recommends that registrants guard against such attacks, by enhancing: (i) incident response plans; (ii) operational resiliency; (iii) vulnerability scanning and patch management; (iv) access management; (v) awareness and training programs (e.g., exercises that help employees better identify phishing emails); and (vi) perimeter security.

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LEGAL

Casey Muller
Director of Legal & Internal Compliance

Casey Muller

SCOTUS: Disgorgement from wrongdoers is a permissible remedy for victims of securities fraud

In Liu et al. v Securities and Exchange Commission (“SEC”), the Supreme Court of the United States held that the SEC is permitted to seek disgorgement from wrongdoers in civil proceedings as a form of equitable relief for victims of securities fraud, provided, however, that the disgorgement does not exceed the wrongdoers’ net profits and is awarded to victims (among other requirements).

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HUMAN RESOURCES

Elizabeth Drivas
SMB Sales Representative at Paychex

Elizabeth Drivas

Starting to think about getting “back to business?”

With COVID-19 disruption changing the way we work, it’s important to consider how the pandemic will reshape your workplace, from staffing needs to new safety protocols. Some companies are opting into having COVID-19 testing done prior to employees coming back to work and distributing them on a regular basis. There are several reasons COVID-19 employer testing is important, such as:

  • OSHA requires employers to provide a safe workplace free from hazards that may cause death or serious physical harm
  • Testing mitigates risk of employee lawsuits for not providing a safe workplace
  • Helps alleviate risk of reputational loss due to an outbreak
  • May help control risk of mass absenteeism due to virus
  • EEOC allows employers to mandate C-19 testing

It is important to note that even if an employer requests the employees to get tested, the employee does not have to send the information to the employer. However, if it is done through Paychex we can have all information sent directly to the employer. If you are interested in adopting this best practice into your workplace, please reach out to Elizabeth Drivas from Paychex at (646) 228-5529 or edrivas@paychex.com.

SDDco SERVICE OF THE MONTH:

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  • Managing your WEB NMA
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Broker-Dealer Membership & Compliance Services Brochure

IN THE SPOTLIGHT

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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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