NASD Issues Guidance Regarding the Use of Part-Time FINOPS

On May 17, 2006, NASD issued Notice to Members 06-23 regarding members’ obligations with respect to registered financial and operations principals (FINOPs). NASD Rule 1022 requires member firms to designate a qualified FINOP and sets forth the specific duties a FINOP must perform. In 1999, NASD informed member firms that all designated FINOPs are responsible for each of the duties specified in Rule 1022, whether or not they are employed off-site, work only part-time or hold multiple registrations with different member firms (part-time FINOPs). NASD also indicated that members that employ a part-time FINOP must establish financial controls procedures that describe the FINOP’s duties, thoroughly outline the manner in which the part-time FINOP will perform those duties, and set forth a process for ensuring that the part-time FINOP understands and remains current with securities laws, regulations and SRO rules relating to financial and operational responsibility.

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Treasury Finalizes Proposed Regulations, Issues New Proposed Regulations, for Roth

In March 2005 the Treasury Department issued proposed regulations that provided guidance on the establishment and implementation of designated Roth contribution accounts in 401(k) plans. Recently these proposed regulations were finalized, with certain clarifying changes. While the final regulations set forth basic and definitional rules for a designated Roth program under a 401(k) plan, they do not address the taxability of distributions from designated Roth accounts or the reporting or recordkeeping requirements applicable to these accounts. These areas are addressed under a new set of proposed Treasury regulations recently issued, which also provide for the establishment of Roth contribution accounts in 403(b) plans.

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Seventh Circuit Court of Appeals Rejects Department of Labor’s Position on Standard of Review for Trustee’s Decisions

In a very important decision for ESOP trustees and other ERISA fiduciaries in a case involving an allegation of an erroneous valuation of employer securities held by an ESOP, the Seventh Circuit Court of Appeals has held that the standard of judicial review of the decisions of an ERISA trustee is deferential unless there is a conflict of interest. Armstrong v. LaSalle Bank National Association, Case No. 05-3417 (7th Cir. 2006). In so holding, the court rejected the Department of Labor’s contention that trustees’ decisions should be reviewed by courts de novo, rather than for an abuse of discretion. The plaintiffs had argued that the actions of an independent ESOP trustee, like the actions of an inside trustee, should be subjected to a de novo review with “strict scrutiny” by the courts.

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NASD and NYSE Issue Joint Guidance on Accomodating Client Requests for Charitable Contributions

On May 5, 2006, the NASD and NYSE published joint guidance recommending that broker-dealers consider establishing policies and procedures to address potential conflicts of interest that may arise when employees or agents of an organizational customer solicit substantial charitable contributions from broker-dealers. At the heart of the issue is a concern that employees or agents of customers who act in a fiduciary capacity (i.e., employees who are in a position to award business to the broker-dealer) may solicit charitable contributions to seek an improper benefit for themselves individually, rather than the customer organization with which they are affiliated. This could occur, for example, when the solicited charitable contribution satisfies a personal pledge or obligation of the employee soliciting the contribution or otherwise results in some pecuniary benefit to that employee. In this way, the concerns here mirror the conflicts concerns that prompted SRO rules limiting gifts and entertainment to employees of customers.

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FinCEN Issues Final Rule Requiring Mutual Funds to Report Suspicious Activity and Offers Guidance on Mutual Fund Due Dilligence Obligati

Final Rule on Mutual Fund Suspicious Activity Reporting - view adopting release

Today, the Financial Crimes Enforcement Network ("FinCEN") issued a final rule that will require mutual funds to file suspicious activity reports on Form SAR-SF. The final rule amends the regulations implementing the Bank Secrecy Act and constitutes a further step toward creating a comprehensive system for the reporting of suspicious transactions by domestic financial institutions, as part of the overall anti-money laundering program of the Treasury Department. The requirements of the rule will apply to transactions occurring on or after November 1, 2006.

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Article - Regulatory and Operational Issues for US Advisers Investing Overseas

Published in The Investment Lawyer (Vol. 13, No. 5) by Steven Stone and J. Christopher Jackson.

Read the article.