“The compliance associate had no trading experience and no formal training to conduct the review required by the rule, such as training related to the analysis of financial statements and other information.”
Rule 15c2-11 of the Exchange Act requires broker-dealers to obtain, review and maintain information about the issuer before initiating or resuming the publication or submission of a quotation for an OTC and non-exchange listed security. The broker-dealer must have a reasonable basis for believing that the information it has obtained is accurate and reliable. FINRA Rule 6432 requires a broker-dealer to demonstrate compliance with Rule 15c2-11 by filing the Form 211, reviewed and signed by a principal of the firm.
Canaccord Genuity LLC had written policies and procedures that said the right things about complying with those rules.
In practice, it failed to follow its written policies and procedures and violated the rules, according to the SEC order.
Canaccord put one of its compliance associates in charge of the process and have the associate the responsibility to obtain and review the information required by Rule 15c2- 11. The associate fill out the Form 211s and placed the electronic signature of the designated principal on the filings. The Rule 15c2-11 files were stuck in a compliance filing cabinet and could not be independently accessed by the traders or the firm’s designated principal without requesting them from the compliance department.
Of course, this case caught my attention because the headlines implicated compliance as part of the problem. The SEC order did not impose a separate penalty on the compliance associate. The associate, as you read in the opening paragraph, was not qualified to conduct the review.
The unanswered question is whether the compliance associate knew the policy and knew that he or she was violating the policy?
Sources:
And of course someone needs to keep asking “why” or “what caused this”. Clearly the compliance associate was being pushed to do work that they might not have been ready to do. Why did this situation exist? (I’m pretty sure it’s not because the compliance associate was doing this “on purpose.”)