Letter to Members - June 14, 2006
June 14, 2006
Dear NASD Member:
NASD held its Spring Securities Conference May 17-19 in Hollywood, Florida, and the keynote speaker was SEC Commissioner Annette L. Nazareth. In her speech, she focused on four areas of concern by the Commission, and because the SEC is NASD's overseer, you can expect NASD to emphasize them in its exam process as well.
The four areas that Commissioner Nazareth highlighted were 529 plans, variable annuities, tenants-in-common exchanges and REITS. She chose these products because they are, she said, "...more prone to retail investor confusion and where compliance could be generally improved." Sales of complex products such as these to seniors were a particular focus of her comments.
On another matter, George Walz, NASD's Director of Examination Programs, told conference attendees that recent NASD audits after the completion of the 3010, 3012, & 3013 process have showed deficiencies in:
- Failure to establish adequate procedures.
- Failure to designate principals to supervise.
- Failure to produce notification of address changes.
- Failure to supervise the sales activities of producing supervisors.
George indicated that NASD is not looking to file enforcement actions now if firms have made a good faith effort to comply. Compliance Reporter recently published a short article about this which you may be interested in reading.
You may also have seen the May 17 letter to members from Bob Errico, NASD's Executive Vice President of Member Regulation, in which he addressed some of these issues and discussed some new and existing regulations of particular significance. I encourage you to use the letter as a guide in reviewing your compliance procedures and supervisory systems.
Finally, I took the opportunity to talk to Commissioner Nazareth about broker-dealer financial statement requirements. In her speech, Commissioner Nazareth expressed her views and not those of the SEC, but I am encouraged that there appear to be no major hurdles to a continued exemption, and a strong possibility of a permanent one before year-end. Mary Schapiro was instrumental in winning the previous exemptions, and continues to work with the SEC on behalf of small firms. I have also written a letter to Commissioner Nazareth offering the help of the Small Firm Advisory Board to resolve any outstanding issues regarding this matter the Commission may have.
NASD Small Firm Advisory Board