B-Ds, RIAs face swarm of surprise regulations: Pershing

Officials at Pershing LLC are warning their broker-dealer and investment adviser clients about a host of new regulations coming down the road, some of which might be a surprise.
For example, brokerage firms will face new suitability rules and much broader trade reporting rules, while RIA firms might face for the first time anti-money laundering regulations, officials said.
The warnings came at a session today at Pershing’s annual conference in Hollywood, Fla., for its broker-dealer correspondents and RIA custody clients.
Although there is a lot of unfinished business related to the Dodd-Frank financial reform law, “I think it’s not just Dodd-Frank that’s causing” the wave of new regulations, said Brian Shea, Pershing chief executive, in an interview.
For example, the U.S. Department of the Treasury’s Financial Crimes Enforcement Network, which enforces money-laundering rules, has been doing “more saber rattling” about subjecting RIA firms to anti-money laundering rules, said Doug Walker, Pershing vice president, during a panel session at the conference.
“Fincen will look at whether it’s appropriate for hedge funds and RIAs [to do] SAR reporting,” he said, referring to the suspicious-activity reports B-Ds and banks now have to file.
Separately, revised suitability rules from the Financial Industry Regulatory Authority, Inc., due to go into effect in July 2012, will add new criteria that firms and brokers have to consider, said Pershing vice president Katherine Ferriter, during the panel discussion.
Finra is adding five new suitability elements, she said: a client’s liquidity, age, investment experience, time horizon, risk tolerance, and a category for other information, she said.
Broker-dealers will also be challenged with several new trade-reporting requirements, said Jesse Lawrence, Pershing director and managing counsel.
Last month, brokerage firms had to begin reporting trades of asset-backed securities on Finra’s Trade Reporting and Compliance Engine (TRACE) system, he said, although the system wasn’t ready to accept many of those securities. Turnaround time on reporting those trades will be shortened in November, Mr. Lawrence said.
And in October, B-Ds will have to report more equity trades and more data through Finra’s Order Audit Trading System (OATS), he said.
New data fields in the revised OATS system will require “information that was never captured before,” Mr. Lawrence said.
Larger financial institutions are struggling with regulatory overload like smaller firms, Mr. Shea and other officials said.
For one thing, regulators want clearing firms to report more data on their larger traders.
In addition, “there are new regulations, like FACTA [the Foreign Account Tax Compliance Act] that are going to have significant impacts [for anyone] custodying assets for U.S. investors,” Mr. Shea said.
Global financial institutions are now trying to figure out how to comply with the law, Mr. Shea said.
Congress passed FACTA last year, which imposes stricter IRS filing requirements on those who have overseas assets of more than $50,000. The law takes effect in 2013.