The SEC recently reminded non-U.S. broker-dealers and advisers with clients that relocate to the United States that they may be required to register under the U.S. securities laws. On July 31, 2013, the SEC sanctioned a Netherlands-based bank for failure to register as an investment adviser under the Investment Advisers Act or as a broker-dealer under the Securities Exchange Act, without qualifying for an exception or exemption from such registration requirements.
The SEC said that the bank and some of its retail and private banking affiliates located outside of the United States “regularly solicited, effected transactions in securities with and for, and, for compensation, provided investment advice to, persons in the United States.” In many cases, the services were provided to existing foreign brokerage clients who relocated to the United States on a permanent basis. The SEC said that the bank did not maintain procedures sufficient to prevent its retail and private banking affiliates from providing such services to U.S. persons. Moreover, the SEC said that the bank did not maintain adequate training programs to ensure that its personnel knew that continuing to provide such services to clients that relocated to the U.S. on a non-temporary basis constituted a violation of U.S. securities laws.
The SEC said that the bank became aware of the conduct at issue in 2004, but failed to adequately address it. The bank did not self-report the issues until 2008.
The bank agreed to conduct a thorough review of its commercial and merchant bank investment accounts, as well as commercial investment accounts within its retail and private banking affiliates, to determine if any of these accounts are held by U.S. persons. The bank was ordered to disgorge fees earned on the accounts already identified, plus pre-judgment interest, and to pay a civil money penalty of $2 million.