Compliance September 29, 2023

SEC Imposes $79M in Fines on Advisers for Recordkeeping Violations

Ten firms were fined for using unapproved off-channel devices for business related communications.

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The Securities and Exchange Commission Friday fined 10 firms a total of $79 million for recordkeeping violations. The firms include 5 broker/dealers, two affiliated investment advisers, and three dually registered firms. The firms admitted fault and were censured.

The SEC found that every firm had employees, including senior managers, who were using personal devices for business communications. The communications included information related to investment advice and recommendations and the majority of it was not preserved. The SEC said that the absence of the communications “likely deprived the SEC of these off-channel communications in various SEC investigations.”

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The SEC requires that firms maintain and retain records to enable it, self-regulatory organizations and state securities regulators to conduct effective examinations.

The largest fine was assessed on Interactive Brokers Corp., which was fined $35 million. The SEC found that the firm had policies and procedures to ensure compliance with SEC recordkeeping requirements, but never properly implemented them. The SEC order said that senior directors across the firm violated policies for years.

The CFTC also on Friday announced a fine of its own against Interactive Brokers for $20 million.

The smallest fine was against Perella Weinberg Partners LP, for $2.5 million. The SEC said that the smaller size of the fine was because the violations were self-reported to the SEC.

The other penalized firms were Robert W. Baird & Co. Inc., William Blair & Company LLC, Nuveen Securities LLC, and Fifth Third Securities Inc.; which were fined amounts ranging from $8 million to $15 million.

Compliance September 29, 2023

SEC Proposes New Rules for RILA Annuity Providers

The proposal directs RILA providers to use registration documents that better explain the annuity’s features and complexities.

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The Securities and Exchange Commission proposed amendments Friday that would permit registered index-linked annuities to register on Form N-4, a specialized form for variable annuities.

Under current rules, RILAs must register on more general forms not designed for them and containing information not relevant for investors interested in RILAs.

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RILAs are an annuity product tied to the performance of an investment index, and their performance is “bounded,” meaning returns are restrained in a growing market, but losses are also mitigated in a declining market to provide a predictable stream of income.

According to the SEC, it will allow RILAs to use a “tailored form” for registration and disclosure that will “highlight key information” about them. Specifically, the amendments would alter the Key Information Table on Form N-4 so that the RILA features are more effectively communicated to investors.

The Insured Retirement Institute has backed the proposal and came out with commentary today in support of the suggestions.

Jason Berkowitz, the IRI’s chief legal and regulatory affairs officer, highlighted an exception in the proposal that would permit RILAs to use simplified financial statements: “Notably, we are encouraged that under the proposal, RILA issuers would appear to be eligible for a limited exception, which is already available to variable annuity issuers, to use statutory financial statements rather than GAAP financials only if the insurer does not otherwise prepare GAAP financial statements. This is a particularly critical element of the proposal.”

The comment period will remain open for 60 days from today or 30 days following the proposal’s publication in the Federal Register, whichever is longer.

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