SEC Intensifies Scrutiny of Fee-Based Accounts and Reverse Churning

The SEC is crunching a lot of data these days, and it apparently intends to use some of that data to identify “reverse churning.” Reverse churning is the practice of placing a client who trades infrequently in a fee-based, rather than a commission-based, account. Chair Mary Jo White recently identified this as a problem that the SEC can detect through its quantitative analytics.

Based upon the SEC’s and FINRA’s past regulatory and enforcement focus in this area, we recommend that firms review their supervisory systems and procedures to ensure that they are adequate to identify possible instances of reverse churning before the regulators do. Evaluation of the appropriate use of fee-based accounts is very likely to be an SEC exam priority in the coming year.

Please see full alert below for more information.

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Topics:  Broker-Dealer, Brokers, Chief Compliance Officers, Churning, Compliance, FINRA, SEC

Published In: General Business Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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