Brokers riled by overlapping enforcement penalties from multiple regulators

With several agencies patrolling the same beat, advisers and firms can be hit with numerous sanctions for a single infraction

Mar 27, 2017 @ 2:24 pm

By Mark Schoeff Jr.

+ Zoom

Enforcement panels at regulatory conferences can sometimes be dull. But complaints about multiple regulatory penalties for the same violation brought the crowd to life last week in San Diego.

Stephen Cutler, vice chairman of J.P. Morgan Chase & Co., likened the situation to "not just double jeopardy but multiple jeopardy," drawing applause during an appearance last Tuesday at the Securities Industry and Financial Markets Association compliance and legal seminar.

Regulatory overlap and duplication — both in enforcement and rulemaking — was a consistent theme of the gathering. What has the industry on edge are, for example, cases in which both the Securities and Exchange Commission and the Financial Industry Regulatory Authority Inc. and sometimes others — such as state regulators — levy fines.

"Regulator A gets in first and settles for $100 million," said Ira Hammerman, SIFMA executive vice president and general counsel. "Then regulator B also settles for $100 million [and so on]. For one violation and one fact pattern, you're paying $400 million."

Examples of double-dipping have included a 2014 SEC case against Scottrade over the accuracy of its trading data that resulted in a $2.5 million settlement and a similar 2015 Finra case against Scottrade over data integrity that was settled for $2.5 million. The SEC and Finra over the course of 2014 and 2015 also both levied penalties against Success Trade Inc. for a Ponzi scheme that involved current and former professional athletes. Recently, the SEC barred broker William Bucci after Finra had already done so in 2013.

"It seems that every regulator wants its pound of flesh, and it's not cognizant of the costs that are attendant to defending multiple proceedings involving the same conduct," said Daniel Hawke, a partner at Arnold & Porter Kaye Scholer.

The duplication of effort occurs even more on probes of potential violations, according to Kate McGrail, a partner at Murphy & McGonigle.

"The regulators say they cooperate and coordinate with respect to inquiries and penalties, but the reality is that firms aren't seeing much evidence of this," Ms. McGrail said.

There's also overlap in rulemaking and compliance guidance. Mr. Hammerman notes that up to 10 different regulators are exploring cybersecurity.

At the SIFMA conference, Finra president and chief executive Robert Cook acknowledged that many regulators are patrolling the same beat and can tend to take action in the same area.

"We need to identify when this is happening," Mr. Cook said. "We need to be cognizant of the fact that we're not the only regulator in this space. Sometimes you lead by standing down."

Regulators do get together, compare enforcement notes and try to sort out who's doing what, said Mr. Hawke, a former director of the SEC's Philadelphia office. But sometimes that cooperation can give way to a desire to make their mark first in a case.

"When the problems arise are when multiple regulators see themselves in competition with one another," Mr. Hawke said.

If financial firms and advisers think they're going to get hit from many directions, they may be less willing to negotiate.

"How can we advise our clients about settling when we don't know what's coming down the pike?" Ms. McGrail said. "It creates this layer of unpredictability that militates against settling with any regulator."

0
Comments

What do you think?

View comments

Recommended for you

Featured video

Events

Pershing's Dolly: 3 challenges facing advisers ahead

What are the biggest challenges facing financial advisers today? Pershing Lisa Dolly explains some of the hurdles, and how great advisers are overcoming them.

Video Spotlight

Will It Last As Long As Your Clients Do?

Sponsored by Prudential

Video Spotlight

The Catalyst

Sponsored by Pershing

Latest news & opinion

Brian Block's $4 million bonus was tied to a key metric at ARCP

Prosecution rests case in fraud trial against CFO of American Realty Capital Properties.

Edward Jones is winning the Google search war

Brokerage firm's digital marketing investment helps land it at the top of local and overall search engine results, report finds.

Voya's win in 401(k) fee suit involving Financial Engines bodes well for other record keepers

Fidelity, Aon Hewitt and Xerox HR Solutions are currently defending against similar fiduciary-breach claims.

Collective investment trusts getting more attention from 401(k) advisers

The funds are catching on due largely to lower costs and more product availability, but come with some inherent drawbacks.

Vanguard rides robo-advice wave to $65B in assets

Personal Advisor Services, four times the size of its closest competitor, combines digital and human touch.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print