Compliance December 22, 2006
So, You Think You Have Problems?
You may think things are crazy this time of year in your office – and they may well seem that way. Advisers are human, after all, and advisory firms composed of human advisers. We’re all subject to human foibles. But a recent NASD settlement reminds us all of just how out of control things can get.
Reported by Nevin E. Adams
The $5 million settlement with USAllianz Securities was reached for what was described by NASD as “widespread supervisory and record-keeping violations.’ Supervisory violations are, unfortunately, not all that unusual in such matters, and record-keeping violations also seem rather innocuous, though they can have rather ominous implications (these days, as in this case, it generally comes down to email management).
Still, a settlement that, as this one did, also bars a firm from opening any new offices for 30 days – and from hiring any new registered representatives for seven days, seems a bit out of the norm. That USAllianz was also “ordered to retain an independent consultant to verify that it has fully implemented recommended modifications and additions to its supervisory system and procedures’ seemed to emphasize just how little faith NASD had in the ability to implement the mandated changes, despite the $5 million fine.
Making a List
In its announcement of the agreement, NASD said that “…for almost five years, USAllianz failed to establish and maintain a reasonable supervisory system and written procedures designed to oversee the firm’s registered representatives and their activities.’ It then went on to enumerate those deficiencies, including:
Supervisory, Compliance Shortfalls Cited
NASD says that “many’ supervisors were not qualified to carry out their supervisory responsibilities because of a lack of experience, education and training – and that some delegated those responsibilities to individuals that were even less qualified.
NASD also took issue with the size of USAllianz’s compliance department, noting that for “much of 2001 and 2002, it had just two compliance officers for a large field sales force that were working in numerous offices scattered throughout the United States.’ NASD also took issue with the firm’s internal office inspection program, noting that it “failed to provide adequate oversight, training and guidance,’ and “did not provide inspectors with any objective standards for finding deficiencies or potential rule violations,’ – the latter led to “numerous instances where deficiencies were not appropriately identified.’ The settlement announcement noted as an example a situation where “an inspector could determine that an entire office was fully compliant in an area simply because a single registered representative did not exhibit any deficiencies in that area.’
NASD also said that USAllianz failed to offer an adequate training program for inspectors and did not ensure that they had an appropriate level of experience before conducting inspections. Finally, prior to March 2005, NASD says that “USAllianz did not have any system in place to capture, preserve and maintain e-mail communications.’
Now, as is frequently the case in such matters, in settling with NASD, USAllianz neither admitted nor denied the findings. They did, however, consent to NASD’s findings.
The NASD news release is online here
Still, a settlement that, as this one did, also bars a firm from opening any new offices for 30 days – and from hiring any new registered representatives for seven days, seems a bit out of the norm. That USAllianz was also “ordered to retain an independent consultant to verify that it has fully implemented recommended modifications and additions to its supervisory system and procedures’ seemed to emphasize just how little faith NASD had in the ability to implement the mandated changes, despite the $5 million fine.
Making a List
In its announcement of the agreement, NASD said that “…for almost five years, USAllianz failed to establish and maintain a reasonable supervisory system and written procedures designed to oversee the firm’s registered representatives and their activities.’ It then went on to enumerate those deficiencies, including:
- “Supervising principals who, in some instances, did not know which registered representatives they were responsible for supervising and in other instances registered representatives could not identify their supervising principals, both resulting in supervisory lapses.’
- “Supervisors who were not qualified to carry out their supervisory responsibilities because they lacked experience, education and training; and, in other instances, supervisory principals inappropriately delegating their day-to-day supervisory responsibilities to other, less experienced principals, often without notifying the firm.’
- “Inadequate staffing resources dedicated to compliance given the size and location of the firm’s sales force.’
- “An internal office inspection program that failed to provide adequate oversight, training and guidance, leading to substantial failures to properly identify deficiencies.’
Supervisory, Compliance Shortfalls Cited
NASD says that “many’ supervisors were not qualified to carry out their supervisory responsibilities because of a lack of experience, education and training – and that some delegated those responsibilities to individuals that were even less qualified.
NASD also took issue with the size of USAllianz’s compliance department, noting that for “much of 2001 and 2002, it had just two compliance officers for a large field sales force that were working in numerous offices scattered throughout the United States.’ NASD also took issue with the firm’s internal office inspection program, noting that it “failed to provide adequate oversight, training and guidance,’ and “did not provide inspectors with any objective standards for finding deficiencies or potential rule violations,’ – the latter led to “numerous instances where deficiencies were not appropriately identified.’ The settlement announcement noted as an example a situation where “an inspector could determine that an entire office was fully compliant in an area simply because a single registered representative did not exhibit any deficiencies in that area.’
NASD also said that USAllianz failed to offer an adequate training program for inspectors and did not ensure that they had an appropriate level of experience before conducting inspections. Finally, prior to March 2005, NASD says that “USAllianz did not have any system in place to capture, preserve and maintain e-mail communications.’
Now, as is frequently the case in such matters, in settling with NASD, USAllianz neither admitted nor denied the findings. They did, however, consent to NASD’s findings.
The NASD news release is online here
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