The North American Securities Administrators Association says that broker-dealer compliance programs throughout the country tend to exhibit deficiencies in several key areas:
• Registration and licensing • Sales practices • Operations • Supervisions • Books and records
Failure to follow written procedures and policy for supervision, variable product suitability, and advertising sales literature are considered the three most commonly noted problem areas.
NASAA issued its findings based on the 567 deficiencies in these five areas that were discovered by regulators in 30 states during 290 examinations that took place between January 1 and June 30. NASAA president and North Carolina deputy securities administrator David Massey says that the organization is flagging the deficiencies to assist brokers in reducing the risk of regulatory violations.
To remedy the deficiencies, NASAA is offering 10 best practices, including those that involve broker-dealers:
• Updating and enforcing written supervisory procedures.
• Developing standards and criteria that can effectively determine which investments are suitable for each client.
• Documenting “red flags” and resolving these promptly.
• Establishing a “meaningful” audit plan that includes unannounced visits and a follow-up plan.
• Obtaining regulatory approval of sales literature and ads before using them • Setting up procedures that can prevent and detect unauthorized private securitization transactions.
• Ensuring that registered representatives’ outside business activities are reviewed before they take place.
• Effective monitoring of both hard copy and electronic correspondence.
• Acknowledging receipt of complaints and updating of a registered representative’s Form U-4.
• Conducting a thorough investigation of the allegations.
Investors that have lost money because of securities fraud or broker mistakes may be able to recoup their losses with the help of an experienced stockbroker fraud law firm.