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Background Checks for New Personnel / Family Offices Granted No-Action Relief


2/3/15

New Rule Requires Brokerage Firms to Adopt More Stringent Background Checks for New Personnel

In an effort to strengthen the hiring procedures for brokerage firms, the Securities and Exchange Commission (SEC) has approved the Financial Industry Regulatory Authority’s (FINRA) proposed Rule 3110(e) to strengthen background reviews for new hires.  The new requirement, which will be implemented on July 1, 2015, will require firms to adopt written procedures to verify the accuracy and completeness of an individual broker’s registration on Form U4 – the primary avenue through which investors obtain information about brokers. This requirement intends to ensure that brokerage firms obtain a more comprehensive and accurate profile for any new registrants or newly hired personnel. The firm must verify the accuracy and completeness of the applicant’s Form U4 no later than 30 calendar days after an initial or transfer form is filed with FINRA.
 
The additional requirements are likely to increase compliance time and costs for financial firms as the brokerage firm cannot just perform an internet search, but must perform a more extensive investigation. The brokerage firms will have to work quickly in order to write the procedures to be implemented that will fully comply with these revised regulations.

Family Offices Granted No-Action Relief from Commodity Trading Advisor Registration

The Commodity Futures Trading Commission (CFTC) Division of Swap Dealer and Intermediary Oversight recently issued a no-action letter which provides Commodity Trading Advisor (CTA) registration relief to family offices.  A family office, as defined under the Investment Advisers Act of 1940, is generally a company that does not hold itself out to the public as an investment adviser, is wholly owned by “Family Clients”, as defined by regulations promulgated by the Securities and Exchange Commission, and whose only clients are Family Clients.  The new letter from the CFTC provides relief from CTA registration for any CTA that qualifies as a family office and provides  advisory services to Family Clients – prior to the no-action letter, only the commodity pool operator (CPO) was provided relief from registration for CPOs operating family offices, this did not include the CTAs. This registration is not self-executing; CTAs serving Family Clients must submit an electronic filing with the CFTC including the CTA’s name, contact information, capacity and names of the pools for which the claim is filed.
 
Contact
 
For more information, please contact Jay Levy, a CohnReznick partner and the Firm’s Financial Services Industry Practice Leader, at jay.levy@cohnreznick.com or 212-297-0400.
 
To learn more about CohnReznick’s Financial Services Industry Practice, please visit our webpage.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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