More On Legal & Compliancefrom The Advisor's Professional Library
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- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
Software provider Ipreo announced Tuesday that it has augmented its iCompliance online certificate library to assist broker-dealers in meeting FINRA Rule 2111 requirements through a new compliance certificate, Institutional Suitability Certificate: Affirmative Indication of Exercise of Independent Judgment.
As of July 9, all BDs transacting with clients or making investment recommendations to them must comply with new suitability standards established by FINRA Rule 2111. The rule, which is modeled on NASD Rule 2310 (Suitability), requires that a firm or associated person have a “reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile.”
A broker’s recommendation is still the trigger for the rule’s application, and uses a “facts and circumstances” approach in its determination, but makes a number of changes to the institutional investor exemption and clarifies which sorts of information brokers must ask for and analyze before they make recommendations.
According to Brian Rubin (left), a partner at the law firm Sutherland, there’s a lesser burden to satisfy regarding institutional customers, “because the thinking is that they are sophisticated or reasonably sophisticated in terms of their investment decisions.”
The regulatory notice states, “The new rule makes clear that a broker must have a firm understanding of both the product and the customer. It also makes clear that the lack of such an understanding itself violates the suitability rule.”
It does, however, allow exceptions for those BDs that can submit a certificate that establishes their ability to exercise independent judgment, and that is where Ipreo comes in.
The FINRA- and SIFMA-approved enhancement is just one of the compliance-related certificates available through Ipreo, which offers thousands of such U.S.compliance-related certificates across asset classes, including QIB and FINRA 5130/5131 for IPOs.
Jennifer Sun, executive VP and managing director of Equity Capital Markets at Ipreo, said in a statement, "This is a natural extension of our certificate library, and we are uniquely positioned to support these compliance efforts in that the majority of investors who require these types of certificates are already identified in our Bigdough contact database, greatly facilitating the fulfillment and timeliness of the compliance requirements." The Bigdough database consists of more than 120,000 contacts at over 25,000 institutions.
Certificates are available through a centralized library of such documents, with the ability to request certificates directly through the iCompliance application. They are delivered in a range of methods that include Excel spreadsheets, data feeds or via a standalone application or the company’s Bigdough products. BDs that do not wish to manually collect and maintain their own certificate library can use the application to request certificates that can be used across equity and debt for both primary and secondary trading.