United States: As The Summer Wound Down … FINRA Amended The "Publicity Rule" (Rule 8313) And Discussed Best Practices In Business Continuity Plans

In the past few weeks, FINRA published several Regulatory Notices, two of which should be of interest to all broker-dealers. Regulatory Notice 13-27 discusses recently approved amendments to the oddly named "Publicity Rule" concerning release of FINRA disciplinary complaints and decisions, statutory disqualification decisions, and other information. Regulatory Notice 13-25 is a joint advisory issued with the Securities and Exchange Commission ("SEC") and the Commodity Futures Trading Commission ("CFTC"), discussing business continuity plans and "best practices and lessons learned" following the wide disruption to the markets caused by Hurricane Sandy in October 2012.

The Publicity Rule

FINRA has amended Rule 8313 (the "Publicity Rule") to increase transparency into the FINRA decision-making process and to provide additional guidance to member firms in their compliance efforts. Among other things, the amended Rule aligns FINRA's periodic publication of disciplinary information with the information already publicly available on BrokerCheck and with the SEC's practice of disclosing information on its website. The amendments take effect on December 16, 2013.1 

Disciplinary Actions and Complaints

The amendments to Rule 8313 eliminate the disclosure thresholds that previously limited disclosure of disciplinary actions to those resulting in sanctions over $10,000. Once the amendments become effective, all disciplinary complaints and decisions will be released in unredacted form, regardless of the size of the sanction, subject to limited exceptions at the discretion of FINRA and its staff, as described below. In addition, the removal of dollar thresholds will allow FINRA to notify its membership and the press when any disciplinary decision has been appealed to the SEC, including information regarding whether sanctions have been stayed during the appeal. These changes are intended to provide firms with greater access to information when evaluating their own compliance concerns and educating their associated persons, and also to better inform firms that are facing allegations of rule violations about existing disciplinary actions (for instance, the underlying facts and sanctions imposed). FINRA notes that these changes to Rule 8313 are less significant than they might have been in years past because disciplinary information now is publicly available on BrokerCheck, even when the decisions themselves are not published.

The amendments also clarify that when FINRA has published a disciplinary complaint that subsequently is dismissed or withdrawn, FINRA will publish with the complaint the order dismissing or withdrawing the complaint. FINRA states that this is consistent with the SEC's practice.

Other Amendments of Note

The amended Publicity Rule provides for the release of unredacted copies of, among other things, statutory disqualification decisions and notifications, including the identities of the statutorily disqualified individuals or member firms. This is a marked change from current FINRA rules that provide for the release of redacted versions of these materials.

The changes also address the release of expedited proceeding decisions for certain types of misconduct, like the failure to pay fees or meet eligibility requirements, and summary actions for failure to pay fines or monetary sanctions. The amendments consolidate the publication standards for these decisions and codify the current FINRA practice of releasing decisions relating to summary suspensions or expulsions for failure to pay fines. While these rule changes do not change FINRA practice, they update the Publicity Rule to comport with existing practice.

Publication of decisions from Membership and Continuing Membership Application appeals to the National Adjudicatory Council and FINRA board will now be governed by the Publicity Rule. These generally will continue to be published in redacted form, although the National Adjudicatory Council and the FINRA Board both will have the authority to direct the publication of unredacted appeals decisions.

In addition, the amendments permit the release of exemption decisions and "any other decision," although there is no requirement to publish them.

Rule 8313, as amended, includes a new provision that permits FINRA, notwithstanding the general inclination towards publication of unredacted materials, to redact information, on a case-by-case basis, if there are personal safety or privacy concerns that outweigh the investor protection concerns that the Publicity Rule generally supports. Therefore, materials that contain confidential customer information, or that might raise significant risk of identity theft or concerns about personal safety or privacy, may be redacted. This is consistent with FINRA's current approach in releasing information in BrokerCheck.

Business Continuity Planning

Regulatory Notice 13-25 (the "Joint Notice"), is a joint advisory issued with the SEC and CFTC regarding business continuity plans ("BCP"). The considerations that are presented in this notice are based on conversations between the regulators and leading market participants regarding how the firms executed their BCPs in the aftermath of Hurricane Sandy.2 

The following is a list of the major topics that the Notice encourages FINRA member firms to consider in evaluating their BCPs.

Widespread Disruption Considerations:

  • The possibility of a widespread lack of critical utilities (i.e., telecom, transportation, electricity), office space, fuel and water, with consideration of redundancy services and the proximity of vendors for these services to the area affected by a potential BCP event.
  • The extent to which a BCP is dependent on remote access and services necessary for employees to work remotely during a crisis event; because remote access relies heavily on fully functional telephone and internet service, firms should also evaluate alternatives that do not require fully functional telecommunications systems for key control functions such as compliance, risk management, back office operations, and financial and regulatory reporting.

Alternative Locations Considerations:

  • Whether primary sites and alternative locations such as back-up data centers and operations sites rely on the same critical utility services, and whether alternative locations should be located in a different geographic area.
  • The accessibility of, and staff's familiarity with, alternative locations, and the ability of staff to travel to such locations when transit and lodging options may be impacted.
  • The appropriate number of staff and amount of space at alternative locations necessary to perform critical activities, such as risk functions, control functions, finance and treasury activities, and the appointment of designated supervisors of BCP functions.
  • The adequacy of operational and logistical requirements (for example, backup generator capacity) to supply critical functions and users.
  • The availability of BCPs, contact lists and other necessary documents, procedures and manuals at alternative locations, ideally in paper form, in the event that electronic files cannot be accessed.
  • The ability to pre-arrange reserved space at remote locations, including hotels, and transit for key personnel, as well as whether to move critical staff in advance of a significant BCP event.

Vendor Relationship Considerations:

  • Whether vendors that provide critical services or supplies (for example, clearance and settlement, banking and finance, trading support, fuel, telecommunications, electricity and other utilities) have their own BCPs and whether those BCPs are adequate.

Telecommunications Services and Technology Considerations:

  • The adequacy of relying on a single telecommunications service provider, and the possible need to contract with multiple telecommunications carriers to provide a failover to a different carrier, if necessary, to maintain fax, voice mail, and landline and VoIP services.
  • Whether there are mechanisms and processes to provide customers, trading counterparties, and regulators with updated contact information if alternate telephone lines must be used.

Communication Plans Considerations:

  • Providing customers and trading counterparties with contact information, and keeping the firm's website updated to include operational status and general contact information.
  • Establishing relationships with multiple broker-dealers to facilitate alternative market entry points.
  • Implementing a communication plan that allows firms to better communicate and coordinate with regulators, exchanges, emergency officials and other firms, with focus on reducing the likelihood of inconsistent communications.
  • Establishing a centralized process for accounting for all firm staff members, and frequently updating emergency contact lists with relevant firm staff members.
  • Adopting diverse methods of communication with staff, particularly critical staff, including providing them with multiple communications devices on multiple carriers, if necessary.

Regulatory and Compliance Considerations:

  • Remaining aware of time-sensitive regulatory requirements that coincide with a potential BCP event.
  • Updating BCPs to include new regulatory and SRO requirements.

Review and Testing Considerations:

  • Conducting full BCP tests and participating in industry testing, at least annually, but more frequently if changes to the plan or to the business are made.
  • Conducting annual or more frequent BCP training to familiarize all personnel with the plan and any critical roles they have been pre-assigned in carrying out the BCP.
  • Incorporating stress tests into the firms' BCPs (for example, performing a stress test on the firm's liquidity position and reviewing the level of excess customer reserves, to be better prepared to adjust liquidity or excess reserves prior to an event).

The Joint Notice does not suggest that any of the firms contacted had inadequate BCPs or that the regulators identified any particular problems with firms' actions to address the impact of the storm. That said, having provided this new guidance based on the first-hand experiences afforded by Hurricane Sandy, such as fuel shortages, telecommunications down from multiple carriers, transportation snarls, and both New York City and significant parts of New Jersey impacted, the regulators likely will scrutinize firms' BCPs and disaster recovery plans closely in the future.

Footnotes

1. The text of the amendments are found here.

2. Regulatory Notice 13-25, Business Continuity Planning (August 2013). The SEC Office of Compliance Inspections and Examinations at the same time issued a National Examinations Program Risk Alert, "SEC Examinations of Business Continuity Plans of Certain Advisers Following Operational Disruptions Caused by Weather-Related Events Last Year" (August 27, 2013).

www.bingham.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.