Securities Litigation Blog | Burr & Forman LLP

FINRA Proposal Modernizes Supervision Rule to Recognize WFH

Thomas K. Potter, III — Mon, 01 Aug 2022 09:00:01 -0400

On July 27, 2022, FINRA filed a proposed rule change with the SEC that would “modernize” its supervision rule to make permanent pandemic-related temporary exemptions that allowed limited-scope work-from-home (“WFH”) for brokers.

The filing proposes “to adopt new Supplementary Material .19 (Residential Supervisory Location) under FINRA Rule 3110 (Supervision) that would align FINRA’s definition of an office of supervisory jurisdiction (“OSJ”) and the classification of a location that supervises activities at non-branch locations with the existing ...

FINRA Report Denies Arbitrator Selection Manipulation

Thomas K. Potter, III — Thu, 30 Jun 2022 09:00:02 -0400

On June 29, 2022, FINRA released the report of its independent investigation, concluding that allegations of a “secret agreement” to avoid certain arbitrators on an industry lawyer’s cases were untrue.

The allegations were the basis for a Georgia state court’s January 2022, vacatur of an award in favor of a large bank’s brokerage unit. The ruling is pending appeal. Based on the Georgia court’s finding that the Respondents had “manipulated the arbitration process,” FINRA’s Audit Committee commissioned an independent review. The review was led by a Lowenstein ...

FINRA Warns Against Russian-Sponsored Cyber Attacks

Thomas K. Potter, III — Fri, 29 Apr 2022 09:00:03 -0400

In its April 27 Weekly Update, the Financial Industry Regulatory Authority’s (“FINRA”) National Cause and Financial Crimes Detection program urged FINRA member firms to review a cyber-threat alert arising from Russia’s invasion of Ukraine.

The Cybersecurity and Infrastructure Security Administration (“CISA”) issued an April 20, 2022, Advisory warning of increased Russian state-sponsored and criminal cyber threats in retaliation for Western support for resistance to Russia’s invasion of Ukraine. The cybersecurity authorities of Australia, Canada, New ...

SIFMA’s After-Action Report on Quantum Dawn VI Cybersecurity Exercise

Thomas K. Potter, III — Fri, 01 Apr 2022 09:00:04 -0400

On March 31, 2022, the Securities Industry and Financial Markets Association (“SIFMA”) released its after-action report on Quantum Dawn VI – a global financial-markets cybersecurity exercise.

Quantum Dawn VI was conducted on November 18, 2021, with over 1,000 participants from 240 financial institutions and regulatory bodies representing 20 countries. The exercise simulated a large-scale ransomware attack by a state-actor against major global financial institutions and regulators. The scenario was chosen, in part, based upon an observed 93% increase in ransomware ...

FINRA Clarifies CCO Supervisory Liability

Thomas K. Potter, III — Tue, 22 Mar 2022 09:00:05 -0400

In the securities industry, regulators like to say that the compliance professionals are their “partners.” But every so often, those regulators charge one of their compliance partners with rule violations. The compliance community understandably gets unsettled, expresses concern, and regulators respond with a “don’t worry” clarification explaining those charges were driven by unusual “facts and circumstances.” That cycle just completed again.

On March 17, the Financial Institution Regulatory Authority (“FINRA”) issued Regulatory Notice 22-10 to ...

SEC Proposes Cybersecurity Disclosure Rule For Public Companies

Thomas K. Potter, III — Thu, 10 Mar 2022 09:00:06 -0500

Continuing its active regulatory agenda, the Securities and Exchange Commission on March 9, 2022, proposed new cybersecurity regulations for reporting public companies. Although couched as a series of “disclosure” requirements, the proposed list of required disclosures can be viewed as a de facto prescription of what public companies must do and say on cybersecurity; that prompted Commissioner Peirce to dissent.

The Proposed Rule would require reporting public companies to promptly disclose “material cybersecurity incidents” and their response, updating those ...

FINRA Urges Firms to Heed CISA/FBI “Shields Up” Warning on Russia

Thomas K. Potter, III — Thu, 17 Feb 2022 09:00:07 -0500

The regular “Weekly Update” email from the Financial Industry Regulatory Authority (“FINRA”) had an eye-catching warning February 16, urging broker-dealer member firms to heed the “Shields Up” cyber threat warning from the Cybersecurity and Infrastructure Security Agency (“CISA”) and the FBI.

That warning urged heightened cybersecurity vigilance “related to Russia’s potential destabilizing activities against Ukraine.” The CISA alert said, “While there are not currently any specific credible threats to the U.S. homeland, we are mindful of the ...

SEC Proposes Cybersecurity Rule for Advisers, Investment Companies

Thomas K. Potter, III — Mon, 14 Feb 2022 09:00:08 -0500

On February 9, the SEC proposed new cybersecurity risk management regulations for investment advisers, registered investment companies (funds), and business development companies.

Relying on the Commission’s mission to protect investors and ensure orderly markets, the Release cites increasing cybersecurity threats and emphasized the disruptive consequences and costs (to advisers, funds and investors) of unpreparedness. The Release grounds the Proposal in advisers’ fiduciary duty to clients and the anti-fraud “compliance rule” requiring written policies ...

FINRA’S 2022 Report on Examination & Risk Monitoring Program

Thomas K. Potter, III — Thu, 10 Feb 2022 09:00:09 -0500

Over the last couple of decades, the securities self-regulatory organization FINRA (f/k/a NASD) informs its membership each year of what compliance risks are noted by its examination program. Those are risks firms should address and also might be harbingers of enforcement focus for the coming year. Years ago, it was the “Errico Letter” - a friendly reminder from NASD’s Head of Member Regulation. Then it became the Examination Priorities Letter. Now it’s a Report, but with a more useful assemblage of the Rules and Resources applicable to each risk called out.

Some risks have ...

Meta Shutters Diem

Thomas K. Potter, III — Wed, 02 Feb 2022 09:00:10 -0500

Requiescat Diem. Launched with great fanfare three years ago as Libra, the Facebook/Meta-led blockchain stablecoin effort now called Diem announced January 31 that it will shut down and sell its assets to Silvergate Capital Corporation.

Libra was launched June 18, 2019, with support by many key finance and payments industry participants. Libra aspired to become a worldwide blockchain-based stablecoin payment system. Initially envisioned as a multi-currency stablecoin, Libra was to be backed by a basket of reserve assets including fiat currencies and short-term government ...