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SEC Customer Protection Rule Self-Reporting Deadline Nov 1; Sweep Underway

Under a recently-announced Securities and Exchange Commission (SEC) initiative, brokerdealers have been invited by the agency to self-report potential violations of Rule 15c3-3 under the Securities Exchange Act of 1934, commonly known as the Customer Protection Rule, in exchange for favorable settlement terms in any resulting enforcement recommendation (the “CPR Initiative”).

In addition, the agency announced that its Enforcement Division, working with the Division of Trading and Markets and the Office of Compliance Inspections and Examinations, is currently conducting a sweep to examine broker-dealer compliance with the Rule.

Adopted in 1972, the Customer Protection Rule requires broker-dealers to safeguard customer cash and securities in specially protected accounts to limit risk use of clients’ funds. It is also designed to ensure that in the event a firm becomes insolvent, customers would still be able to access a significant amount of the funds they own.

To qualify under the CPR Initiative, which is similar to the SEC’s Municipalities Continuing Disclosure Cooperation Initiative (“MCDC Initiative”) announced in 2014, broker-dealers have until November 1, 2016 to self-report violations of the Rule. Under the program, the Division of Enforcement will recommend that the Commission agree to lenient settlement terms with respect to self-reporting broker-dealers, including:

  • Charges limited to a violation of Rule 15c3-3 and any related books and records and reporting violations;
  • No admissions;
  • Monetary remedies limited to disgorgement and reduced penalties in exchange for cooperation.

Patomak Global Partners is uniquely situated to help broker-dealers assess their compliance with Rule 15c3-3 and to evaluate their eligibility to self-report under the CPR Initiative. We also partner with law firms to assist their broker-dealer clients. Patomak’s professionals have deep experience and expertise in broker-dealer compliance matters, including significant industry and government experience specifically related to Rule 15c3-3.

Patomak’s President, former SEC Commissioner Daniel Gallagher, previously served as Deputy Director and then Co-Acting Director of the Division of Trading and Markets. During his tenure on the SEC staff, Mr. Gallagher had direct responsibility for the unit that administered Rule 15c3-3, and has advised numerous clients on Customer Protection Rule issues throughout his career in the private sector.

The Patomak team also includes two other former SEC Commissioners, a former SEC General Counsel, and a former Chief Economist of the SEC, each with significant experience and expertise in complex broker-dealer compliance matters.

 

Disclaimer: Patomak client alerts are prepared for general information purposes to provide news updates and information about our firm and services. The information included is not legal advice nor is the invitation to contact a solicitation for legal work.