On the heels of a multimillion-dollar settlement related to the sales of complex exchange-traded products, the SEC has issued a warning to RIAs and broker-dealers on the practice.
Last week, the SEC said it reached a settlement over the sales of volatility-linked ETPs with American Portfolios Financial Services/American Portfolios Advisors, Benjamin F. Edwards, Royal Alliance Associates, Securities America Advisors and Summit Financial Group, ordering them to return more than $3 million to harmed investors.
The settlements reflect the firms’ failures to ensure that products intended for short-term use — as disclosed in their prospectuses — were used appropriately, causing harm to investors, the SEC says.
In order to avoid landing in the regulator’s crosshairs, the SEC suggests that firms adopt a dynamic compliance program when it comes to onboarding new products, including assessments on when the product should be used and by which clients, training and monitoring of staff and active participation by senior management.
“As part of its examinations, OCIE [Office of Compliance Inspections and Examinations] often does, and will continue to, review for the inappropriate use of complex investment products and evaluate the robustness and effectiveness of related supervisory policies and procedures,” the regulatory agency says in a statement. “OCIE will also evaluate compliance with Regulation Best Interest and an investment adviser’s federal fiduciary duty.”
In announcing the settlement last week, the SEC said it was the first set of actions resulting from the Division of Enforcement’s ETP initiative, which taps analytics to parse trading data for potentially unsuitable sales.
Do you have a news tip you’d like to share with FA-IQ? Email us at firstname.lastname@example.org