SIFMA Compliance and Legal Society Annual Seminar 2015

By Mark L. Kowalsky, Jaffe, Raitt, Heuer & Weiss, P.C., (Michigan, USA)

The Securities Industry Financial Markets Association ("SIFMA") is an organization of several hundred securities firms, banks and asset managers.  Affiliate members of SIFMA include the law firms whose practices involve the securities industry.  SIFMA's Compliance and Legal Society focuses on the education of compliance and legal professionals in the securities industry.


The annual SIFMA Law and Compliance Society seminar attracts industry regulators and more than 1600 compliance and legal professionals, with attendees almost evenly divided between outside counsel and senior compliance officers and in-house counsel from industry firms.  The seminar includes several key note speakers along with more than 60 panels on topics such as "General Counsel Perspectives," "Cyber Security: Practical Considerations for Legal and Compliance," "Arbitration Practitioners Workshop,"  "Detecting and Preventing Fraudulent Investment Schemes," and "Current Enforcement Issues."

This year's just-concluded seminar included key note addresses from Mary Jo White, Chair of the United States Securities and Exchange Commission; Richard Ketchum, Chair and Chief Executive Officer of FINRA; and Preet Bharara, United States Attorney General, Southern District of New York.  Also featured were comments during a panel presentation from SEC Enforcement Division Director, Andrew Cereseny.

Ms. White's remarks focused on the current public discussion regarding the appropriate standard to govern the conduct of retail stock brokers and registered investment advisors ("RIA's") and the need to prioritize efforts to minimize cyber-security threats.

Several years ago, the SEC released a report that recommended the adoption of a common fiduciary standard for both retail stock brokers and RIA's.  Brokers currently must meet a suitability standard, while RIA's have long operated under a fiduciary standard.  The SEC report concluded that a common standard is needed, in part because many retail investors are confused by the different roles of stock brokers and RIA's.

Ms. White used her presentation at the conference to make her public comments on this issue, she stated, that it was "her personal view" that the SEC should act to establish a uniform fiduciary standard for brokers and RIA's when they provide personalized investment advice to retail customers.  Ms. White recognized that any standard that is adopted will have to be well-defined and that clear guidance will have to be provided to members of the industry so that the firms can establish proper procedures.  She also stated that the SEC will need additional funding in order to properly examine the various types of financial professionals to verify compliance with a higher standard.

Ms. White also mentioned the SEC's recent publications on the growing cyber security risks, these publications identify the best practices for firms to manage cyber security threats and provides guidance to help investors safeguard their online investment accounts.  The SEC's recommendations to the industry include the need to establish a sound governance framework, implement and utilize risk assessments and technical controls, properly train staff and develop cyber incidents response plans.

FINRA chair Mr. Ketchum also commented upon the establishment of a uniform standard for both retail stock brokers and RIA's.  Ketchum said that it "would be far preferable to have a single, consistent [fiduciary] standard that operates out of the SEC across all [investment] vehicles that exist for the individual investor."  Mr. Ketchum updated the attendees that FINRA is prepared to release a revised rule that will require a stock broker to disclose to his clients the recruitment bonuses and other incentives that are received when a broker leaves one firm to join a competitor.   Ketchum commented that the rule would insure that customers can ask and think through the right questions when faced with a request by a broker to transfer an account when the broker is shifting to another firm.

Assistant U.S. Attorney General Preet Bharara used his talk to focus on his belief that a company should not view its compliance department as a "cost center," but should instead recognize it as a valuable tool to ultimately reduce costs to the firm through more efficient processes and the avoidance of problems that lead to fines and related professional expenses.  He advocated that in his view the best run companies are those that empower and reward their compliance departments.

Andrew Cereseny, enforcement division director of the SEC, outlined the SEC's 2015 enforcement priorities.  He noted that in 2014 the commission brought the highest number of enforcement actions to date, 755, and obtained monetary remedies of more than $4.16 billion.  He commented that the enforcement division's priorities continue to focus on investment advisors and the funds they manage with attention directed to conflicts of interest, misrepresentations regarding performance or investment strategy and breaches of fiduciary duty.  The enforcement division is also focusing on "pump and dump" and "pyramid schemes" using social media.  He stated that the enforcement division will continue to stay active in investigating insider trading, using the new sophisticated technological tools that are now available to the SEC to identify such issues and trading patterns.

About the author:

Mark L. Kowalsky is a member of Jaffe, Raitt, Heuer & Weiss, P.C.'s Litigation and Securities Practice Groups, specializing in civil litigation with concentrations in securities law and commercial disputes. He is routinely involved in handling disputes that relate to securities investments, brokerage industry employment, contracts, non-competition agreements, trade secrets, employment, shareholders, partnerships and dissolutions.  He also represents clients in securities enforcement and regulating matters.   Mr. Kowalsky is co-chair of the Firm's Litigation Practice Group.

Mr. Kowalsky regularly provides advice and representation to regional and national securities firms, public and privately held corporations, and individuals. He has extensive experience in federal and state courts, arbitration, mediation and in securities law regulatory matters that often involve requests for immediate injunctive relief and the use of Alternative Dispute Resolution (ADR), including arbitration and mediation.

A frequent speaker and published author, Mr. Kowalsky has accepted appointments as an arbitrator for the Financial Industry Regulatory Authority (FINRA), American Arbitration Association (AAA) and other fora. He also has served as counsel to a court appointed receiver and has sat as a case evaluator for the Oakland County Circuit Court and District Court.

Mr. Kowalsky is located in the Firm's Southfield, Michigan office.