Tag:finance
FINRA Targets High-Risk Brokerage Firms With New Rule
For several years, the Financial Industry Regulatory Authority (FINRA) has sought to increase oversight of brokers who have a history of misconduct as well as the firms that hire these brokers. In an effort to disincentivize the recruitment of high-risk brokers, the Securities and Exchange Commission (SEC) recently approved FINRA’s proposed Rule 4111, which subjects “restricted firms” to additional capital obligations and hiring restrictions. Specifically, FINRA Rule 4111 targets brokerage firms that have exceeded thresholds of risk-related or investor-harming disclosures compared to similarly sized peers. The new rule, which will go into effect in 2022, is designed to provide FINRA with greater authority to proactively address the risks posed to investors by rogue brokerage firms.
The Pandora Papers and the Bank Secrecy Act
The recent Pandora Papers leak in October 2021 shined the light on the massive and intricate web of offshore accounting that allows for insurmountable amounts of wealth to be hidden throughout the world. One of the most shocking revelations of these Papers was how heavily the United States was implicated in creating and perpetuating this system. As such, legislators have been pressured to find a way to crackdown on this sort of offshore money. One way that they have proposed addressing the problem is by amending the United States’ current criminal financial legislation, the Bank Secrecy Act.
SEC Whistleblower Program Surpasses $1 Billion in Award Payouts
The U.S. Securities and Exchange Commission (SEC) reached a rather auspicious milestone in September when it announced that, with the addition of two recent awards totaling $114 million, the aggregate amount of monies paid out under the SEC’s whistleblower program since its implementation in 2011 has exceeded $1 billion. In fiscal year 2021 alone, the SEC has awarded a record $500 million. The SEC also reported that award payments have been made to a total of 207 whistleblowers. In a statement, SEC Chairman Gary Gensler said, “[This] announcement underscores the important role that whistleblowers play in helping the SEC detect, investigate and prosecute potential violations of the securities laws.” The two most recent awards included a payment of $110 million to an individual who, according to the SEC, provided the SEC and another regulatory agency with “independent analysis that substantially advanced the SEC’s and the other agency’s investigation” and culminated in successful enforcement actions. Another whistleblower also provided original information to the SEC and received an award of approximately $4 million, although the smaller amount reflects the fact that the information passed on was significantly more limited in scope. As is its standard policy, the SEC declined to specifically name either of the whistleblowers involved or the cases and companies to which they were connected.
Coronavirus, Compliance, and the Brokerage Industry
COVID-19 has ushered in a new era for the brokerage industry as financial advisors and professionals across the world have been exiled from regional offices in favor of remote work. Numerous financial advisors may continue working remotely whether due to a novel sense of autonomy, elimination of a commute, or perceived increase in productivity. However, the remote-work era has introduced a plethora of compliance-related issues throughout the brokerage industry. Brokers working remotely possess additional independence to determine when to work and how to communicate with clients, which heightens compliance risks because firms are not able to monitor employees as stringently as they were before COVID-19. Federal regulators, including the Financial Industry Regulatory Authority (FINRA), are responding to newfound compliance risks by issuing updated guidance and investigating potential violations throughout the brokerage industry.
From Beans to Banking
Starbucks. What comes to mind? Expensive coffee in a nice atmosphere? Mermaids? A warm pumpkin spice latte? Perhaps. However, the words “billion-dollar bank” likely do not cross anyone’s mind. As wild as it seems, the huge coffee company actually has $1.5 billion in assets, an amount larger than eighty-five percent of the banks in the United States. Not only is Starbucks flush with cash, but, unlike actual banks, it can use this money to invest in other ventures, invest in the marketplace, or expand its business. This begs the question, is Starbucks merely a coffee company or will it join the ranks of Bank of America and Citibank?
New Cryptocurrency Reporting Rules Remain in Massive Infrastructure Bill
Despite last-ditch efforts by lobbyists for the crypto community, controversial new cryptocurrency tax requirements buried in the massive bipartisan infrastructure bill that passed the US Senate in early August will likely remain unaltered by the House which has committed to vote on the $1 trillion dollar bill by September 27, 2021. The new reporting rules are sending ripples of concern through the cryptocurrency industry and even have some national-security officials worried that their breadth and overreach will only succeed in pushing illicit activities and actors further underground. Overly aggressive regulations risk forcing illegal activity “deeper into anonymizing methods and corners of the internet that would make it more difficult for law enforcement,” according to Jeremy Sheridan, assistant director of the U.S. Secret Service’s investigations office. Moreover, overregulation could also have a chilling effect on domestic innovation and result in the U.S. falling behind other countries that adopt laws and regulations that are more favorable to new technologies. “The U.S. has to make a decision if it wants to be a center of. . . transformational technology that can bring more people into the financial ecosystem. . . [or] get left behind,” said Sigal Mandelker, a former undersecretary for terrorism and financial intelligence in the Treasury Department. Mandelker is now with a private venture capital firm which invests in the crypto markets.
The SPAC Faces Its First Regulatory Obstacle
As Coronavirus (Covid-19) has slowed the global economy, business owners have been forced to adapt to volatile market conditions and use creativity to raise capital. Investors and financial industry professionals have turned their attention to Special Purpose Acquisition Companies (SPACs), which have already raised nearly $100 billion in 2021 compared to $83.4 billion during the previous year. A SPAC is a publicly-traded shell company formed by industry professionals such as institutional investors, private equity firms, and hedge funds. Then, SPAC sponsors will seek to complete a merger or acquisition with another private company, which enables the private company to become publicly traded and bypass the initial public offering (IPO) stage. SPACs usually are allowed two years from the IPO date to formalize an acquisition or return the funds to investors.
Lawmakers and Regulators Call for Action After Archegos Meltdown
Last week, the finance industry watched one of the biggest implosions of an investment firm since the 2008 financial crisis. Archegos Capital Management rocked the industry when it was forced to liquidate huge positions in blue-chip companies after some risky investment strategies went south. The financial instruments used in this risky investment strategy are called total return swaps. The Archegos meltdown has lead lawmakers and regulators to call for increased scrutiny of the swaps.
One of Wall Street’s Hottest Trends: The SPAC
SPACs have been around for decades and often existed as last resorts for small companies that would have otherwise had trouble raising money on the open market. But they’ve recently become more prevalent because of the extreme market volatility caused, in part, by the global pandemic.
While many companies chose to postpone their IPOs due to the pandemic, others chose the alternate route to an IPO by merging with a SPAC. A SPAC merger allows a company to go public and get a capital influx more quickly than it would have with a conventional IPO.
Market Regulation Issues Raised by the Gamestop Buying Frenzy
The regulation of hedge funds has largely been unchecked allowing big Wall Street players to manipulate the market for the benefit and at the detriment of other investors. But forced by an unprecedented movement of retail investors, Wall Street is being forced to reckon with the hypocrisy of their practices.