LAKE OSWEGO, Ore.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/529Plan?src=hash” target=”_blank”gt;#529Planlt;/agt;–Firms facing FINRA’s 529 Plan Share Class Initiative should act now to
meet the regulator’s approaching April 1st deadline to
self-report violations and submit a plan to remediate harmed clients,
according to Bates Group LLC, the leading litigation and regulatory
enforcement consulting firm for the financial services industry.
Through the initiative, announced in FINRA
Regulatory Notice 19-04, FINRA seeks to promote compliance with its
supervision and suitability rules regarding share class recommendations
to clients with 529 savings plans, explained Alex Russell, Bates Group
Managing Director of Securities Litigation and Regulatory Enforcement.
The initiative is also intended to allow firms to “identify and
remediate any defects” in their systems and procedures and to
“compensate any customers harmed by supervisory failures,” said FINRA.
Given the number of challenges firms face in assessing the potential
impact on clients related to 529 plan share class purchases, firms
should immediately begin to address the initiative, warned Russell.
These challenges include:
Timing – Firms face a limited amount of time in which to assess
the need to self-report 529-related supervisory failures. Firms must
respond by 12:00 am EST, April 1, 2019, to participate in the
initiative, with the results of their self-evaluation due by May 3,
2019. Given that the period firms are being asked to review is from
January 2013 to June 2018, there is very little time to spare for
those who think self-reporting might be in their best interest.
Plan Sponsor Data – Many firms may need to go to the plan
sponsors in order to obtain the transaction-level data necessary to
conduct the evaluation and to make a determination as to whether or
not to self-report. Given that the data needs extend back to 2013 or
earlier, this can be a time-consuming process for the plan sponsors.
This adds another time component to the already shortened time frame
to make the self-reporting determination, potentially leaving firms
very little time to conduct the actual data analysis.
Analyzing the Data – Plan Sponsors may provide data back in
disparate formats, including different fields, or failing to populate
certain fields consistently within their data. Given how far back the
request extends, they may have changed formats or their own providers
during the period at issue. Compiling the data together into a single
usable resource for review can create a strain for firms whose
resources already have full-time responsibilities and may not be able
to complete the analysis in the short time provided by FINRA. Whether
an individual review or a statistics-based approach is adopted, firms
must review all transactions in some fashion.
Failure to Self-Report – Firms who do not self-report will
potentially be subject to additional sanctions, whereas those who
participate are likely to be required to make restitution payments
only. In some instances, the penalties assessed in prior matters have
amounted to as much as two thirds of the required restitution, so the
possibility of additional sanctions should be a meaningful part of
each firms’ decision making on whether or not to self-report.
Further details and insight are provided in two new Bates Group
documents: “Planning Your Response to FINRA’s 529 Initiative — Q&A
with Bates Managing Director Alex Russell” https://bit.ly/2TcM3ma,
and “Bates Group Compliance and Regulatory Alert: FINRA Rolls Out Its
529 Plan Share Class Initiative – Is Your Firm Ready to Address It?” at
Support for Firms
Bates has deep and proven experience and
expertise in share class disclosure matters. Most recently, on behalf of
over a dozen major national and regional financial institutions, Bates
provided important assistance to firms and counsel participating in the
SEC’s Share Class Selection Disclosure Initiative and related SEC
To support firms facing FINRA’s 529 Plan disclosure and remediation
initiative, Bates Group can help by providing solutions to identify and
address accounts and clients impacted by share class selection. Bates
performs data analysis, examines regulatory reporting, reviews share
class selection policies and disclosure practices, identifies
methodology and impacted accounts, performs calculations and provides
remediation amounts. Most importantly, after consultation with counsel,
Bates’ disclosure and remediation plan culminates in a report which can
be used directly with regulators. For more information, visit https://bit.ly/2E28oZW.
About Bates Group:
has been a trusted partner to our financial services clients and their
counsel for over 30 years, delivering superior quality and results on a
cost-effective basis. Voted a Best Securities Litigation Consulting Firm
by readers of the New York Law Journal and a NYLJ Hall of Fame service
provider, Bates Group provides end-to-end solutions throughout the
lifecycle of your legal, regulatory, and compliance matters. With a
roster of over 165 financial industry and regulatory experts, Bates
offers services in litigation consultation and testimony, regulatory and
internal investigations, compliance solutions, AML and financial crimes,
forensic accounting, damages, and big data consulting. Bates is also
Evaluator™, a new generation of intelligent analytics for
identifying and selecting the best arbitrators for your customer and
Don Goncalves, 781-793-9380, [email protected]