More Sweeps, Reg BI Cases on the Way

May 20, 2023May 22, 2023 European Compliance

You can bet that the SEC will be issuing more sweeps, Gurbir Grewal, director of the Securities and Exchange Commission’s enforcement division, said Wednesday.

“It’s a powerful tool, and we’ll continue to use it wherever we see risk in a broad industry segment,” Gurbir said at the Financial Industry Regulatory Authority’s annual conference in Washington.

He noted the recent off-channel communications sweep as well as previous sweeps and initiatives around Form CRS and 12b-1 fees and share classes.

Sweeps, Grewal said, are “attention grabbing; they sent a message.”

HSBC Securities and Scotia Capital were the most recent firms hit by the SEC for off-channel communications violations. The SEC said there were “widespread and longstanding failures” by both firms and their employees to maintain and preserve electronic messages.

Christopher Kelly, FINRA’s acting head of enforcement, added on the panel with Grewal that FINRA has been bringing cases related to Regulation Best Interest in “three buckets.”

The first bucket consists of Form CRS cases, the second focuses on Compliance Obligation cases and the third on “substantive violations — care or disclosure obligation,” Kelly said.

While there are “cases in the pipeline” around all three of those categories, Kelly said, “more and more will be brought in third bucket as we move forward this year.”

In a first related to Reg BI violations, FINRA expelled a firm on May 15.

Grewal noted also that Reg BI is an exam priority for this year.

“There’s been a lot of guidance put out about Reg BI … I would recommend each of you educate yourselves,” Grewal said. “It starts with the policies and procedures. It’s not something that’s just a check-the-box exercise.”