On June 23, 2016, the SEC instituted a settled enforcement action against Merrill Lynch, Pierce, Fenner & Smith Inc. and Merrill Lynch Professional Clearing Corp. (collectively, “Merrill”), in which Merrill agreed to pay $415 million in penalties, disgorgement, and prejudgment interest and admit liability for violating Section 15(c)(3) of the Securities Exchange Act of 1934 and Rule 15c3-3 thereunder (the “Customer Protection Rule”), Exchange Act Rule 21F-17 (the “Whistleblower Rule”), as well as other provisions. The Commission also instituted a litigated proceeding against Merrill’s former Head of Regulatory Reporting and designated Financial and Operational Principal (“FinOp”), who also served as the firm’s acting Chief Financial Officer during part of the relevant period. The FinOp was charged with causing or aiding and abetting certain of Merrill’s violations.

At the same time, the Commission announced a two-part Customer Protection Rule Initiative (the “CPR Initiative”) intended to encourage registered brokerdealers to self-report violations and alert the industry that the SEC staff will be conducting risk-based exams to assess firms’ compliance with the Customer Protection Rule. Below is a summary of the proceedings and key takeaways for Broker-Dealers, Compliance Staff and other Regulated Entities or Public Companies.