OCIE Sweep Report Shows Compliance Deficiencies in Structured Product Sales
The staff of the SEC Office of Compliance Inspections and Examinations released the results of a sweep of broker-dealers focused on the sales of structured securities products (i.e. principal protected notes, enhanced-income notes, performance/market participation notes, leveraged/enhanced participation notes, and reverse convertible notes). The report is highly critical of broker-dealers, highlighting deficiencies in disclosure, suitability, secondary market trading and pricing, and sales practices. The report recommends heightened supervisory procedures, increased disclosure of material facts including fees, more training, and additional suitability analysis. The report focuses on a broker-dealer’s obligations described in FINRA Notice to Members 05-59. The sweep exams occurred from 2007-2009 at 11 broker-dealers.
OUR TAKE: The Report indicates that broker-dealers are ignoring NTM 05-59. We are unclear why OCIE and not FINRA conducted this type of sweep exam. Perhaps, this is another jurisdictional dispute among regulators.