Let’s face it; form filing isn’t likely to be voted the most exciting task to do in your firm. Due to frequent changes within the organization and its employees, filing can be a tedious process. While it may seem like something to put in the “to do” pile, committing to updating forms as changes take place is one of the most important functions the compliance department of a broker-dealer and investment adviser should perform.
Filing Can Potentially Guard Future Clients from Harm
The most common issue with larger firms is amending the Form U5 of its representatives upon the occurrence of a disclosable event. Sometimes it’s a minor oversight, and sometimes it’s intentional due to the representative in question being a significant producer. Either way, financial service providers may not be aware that fines and sanctions for failing to update its filings are the proverbial low hanging fruit for regulators. When regulators find a systemic pattern of a firm’s failure to disclose reportable events, sanctions imposed may include fines, an official reprimand, and even a suspension from doing business. In some instances, they may also hold the representatives accountable.
Even if you eventually get to the bottom of the “to do” list and file at a later date, the delay could cost you. This was the case in a recent FINRA fine on J.P. Morgan Securities LLC (JPMS). Within six years, JPMS failed to disclose 89 internal reviews, or in some cases, filed over two years late. Sure, the fine of $1.1 million may not hurt a firm like JPMS, but it may hurt potential future clients as the delays caused FINRA’s jurisdiction to expire. This meant FINRA couldn’t pursue possible disciplinary action against 30 former JPMS representatives. Not only is failing to update filings a violation of the letter of the law, realistically it’s a violation of the spirit of the law.
Make a Compliance Commitment to Form Filing
What can learn from the recent fine on JPMS? We need to make the commitment to file as soon as the disclosable event happens and understand that it’s not only part of compliance, but to ensure prospective clients have all of the information needed to determine if they want to use the firm’s services.
While you might think the revenue generated from not disclosing the issues of the firm and its reps outweighs the fines incurred, keep in mind that in addition to the fines, the reputation of the firm and its representatives are at stake.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes.