ABC, INC - JustAnswer
bfinance US Ltd.
Written Supervisory Procedures
March 19, 2015
Table of Contents
INTRODUCTION 13
Section 1 DESIGNATION OF SUPERVISORS AND OFFICES 14
1.1 Designation of Principals and Qualifications 14
1.2 Designation of Principals 14
1.3 Designation of Offices 16
Section 2 SUPERVISION AND COMPLIANCE 18
2.1 Role of Compliance 18
2.2 Supervision 18
2.3 Responsibility 19
2.4 Controls 19
Verification and Testing 19
Outside Auditors 20
2.5 Maintenance of Written Compliance and Supervisory Procedures 20
2.6 Chief Compliance Officer (FINRA Rule 3130) 20
2.7 Annual Compliance Report to Chief Executive Officer (“CEO”) 20
FINRA Report (FINRA Rule 3130) 21
Annual Compliance and Supervision Certification (FINRA Rule 3130) 21
2.8 Supervision of Producing Managers' Customer Account Activity (FINRA Rule 3120) 21
Reviews to be Conducted 21
Heightened Supervision 22
Limited Size and Resource Exception 22
2.9 Outsourcing Activities 23
Initial Due Diligence 23
Monitoring 24
Section 3 EMPLOYMENT, REGISTRATION AND LICENSING 25
3.1 Employment 25
Hiring Procedures 25
Registered Representative Interview Guidelines 25
Prospective RRs Require Pre-Clearance by Compliance 25
Qualification of Supervisors (FINRA Rule 3110) 25
Background Investigation (FINRA 3110) 26
Fingerprints (Exchange Act Rule 17f-2; FINRA Rule 1010, NTM 05-39) 26
Policies and Procedures 26
New Employee Questionnaire 26
Termination Procedures (FINRA By-Laws Article V, Section 3 and Regulatory Notice 10-39)) 27
Notification to Compliance 27
Retrieval of bfinance Property 27
Reassignment of Accounts 27
Responding To Customer Inquiries 27
Form U5 27
3.2 Registration and Licensing (FINRA Rule 1122) 27
CRD Electronic Filings (FINRA Rule 1010) 27
Registration Requirement 28
Requests for Waivers 28
State Registrations 28
Parking Registrations 28
Form U4 (FINRA Rules 1010 and FINRA Rule 2263) 28
Series 79 28
Series 99 29
Amendments to Forms U4 or U5 30
Assignment of RR Numbers 30
3.3 Statutorily Disqualified Persons (Exchange Act Sec. 3(a)(39) & Rule 19h-1; FINRA By-Laws Art. III, Sections 3 and 4) 31
Hiring a Statutorily Disqualified Person 31
Regulatory Filings 31
Supervision 31
Reporting Statutory Disqualifications 31
3.4 Broker-Dealer Registration 31
Form BD 31
Change in Ownership, Control, Or Business Operations 31
Executive Representative (FINRA By-Laws Article IV, Section 3) 32
3.5 Heightened Supervision 32
Identifying RRs for Heightened Supervision 32
Criteria for Identifying Candidates for Heightened Supervision 32
Heightened Supervision Memorandum 32
Scope of Potential Heightened Supervision 32
Certification by RR's Supervisor 33
3.6 Taping Rule 33
Section 4 TRAINING AND EDUCATION 35
4.1 Annual Compliance Meeting 35
4.2 Continuing Education 35
4.3 Regulatory Element 35
Who is Subject to the Requirements 35
When Requirements must be Completed 35
Regulatory Element Contact Person 35
CRD Notices and Appointments for Training Sessions 35
Registered Persons Who Fail To Complete Requirements 35
Tracking 36
4.4 Firm Element 36
Who Is Subject To the Requirements 36
Firm Requirements 36
Annual Needs Analysis 37
Evaluating the Firm Element Program 37
Training Medium and Tracking 37
Section 5 EMPLOYEE SUPERVISION 38
5.1 Standards of Conduct 38
5.2 Outside Business Activities (FINRA Rule 3270) 38
5.3 Private Securities Transactions 38
5.4 Employee and Employee Related Accounts 39
Employee and Employee Related Accounts Defined 39
Outside Accounts Permitted 39
Review of Transactions 39
Sharing In Accounts (NTM 03-21) 39
Prohibition On Purchases Of Initial Public Offerings (IPOs) (FINRA Rule 5130) 39
Restrictions on Purchase and Sale of IPOs Equity Securities (FINRA Rule 5130) 40
Restricted Persons 40
5.5 Gifts and Business Entertainment 41
Gifts to Others 42
Acceptance of Gifts 42
Entertainment 42
De Minimis and Promotional Items 43
Supervision 43
5.6 Cash and Non-Cash Compensation Policy (NTM 99-55) 43
5.7 Media Contact is Limited to Certain Authorized Employees 44
5.8 Requests for Information from Outside Sources 44
5.9 Employee Obligation to Notify bfinance and bfinance’s Obligation to Report (FINRA Rule 4530) 44
5.10 Reports of Crimes and Suspected Crimes 45
5.11 Prohibited Activities 45
Use of Firm Name 45
Providing Tax Advice not Permitted 45
Sharing Commissions or Fees with Non-Registered Persons 45
Borrowing From and Lending to Customers (NTM 04-14) 45
Personal Funds Deposited In Customer Accounts 46
Prohibition against Guarantees (FINRA Rule 2150) 46
Fees and Other Charges 46
Customer Signatures 46
Rumors 46
Misrepresentations 46
Bribes 47
The Foreign Corrupt Practices Act (“FCPA”) - (United States Code, Title 15, Chapter 2B) 47
Acting Without Registration 49
5.12 Computer Records, Equipment and Software 49
5.13 Use of Titles 49
5.14 Annual Certification 49
5.15 Employees Acting as Trustees, Executors, or Other Fiduciary Capacities 49
Section 6 CUSTOMER COMPLAINTS 51
6.1 Written Complaints 51
6.2 Oral Complaints 51
6.3 Records of Complaints 51
6.4 Office Records of Complaints 52
6.5 Notice to Customers 52
6.6 Disclosure Events 52
6.7 Other Required Filings 53
6.8 Complaint Reporting FINRA Rule 4530 53
6.9 Procedure for Investigation 54
6.10 FINRA’s BrokerCheck Complaint Disclosure (Regulatory Notice 10-34) 55
Section 7 COMMUNICATIONS WITH THE PUBLIC 56
7.1 Advertising and Sales Literature (NTM 03-38) 56
Advertising and Sales Literature Defined 56
General Guidelines 56
Required Information 56
Approval Prior to Publication 56
Disclosure of Prices For Recommended Corporate Securities 57
Use of Outside Advertising or Sales Literature 57
SIPC Membership (Securities Investor Protection Act of 1970, U.S. Code Title 15, Chapter 2B-1) 57
Telemarketing Scripts 57
Special Filing or Approval Requirements 57
Institutional Sales Material 58
Records of Advertising and Sales Literature 59
Advertisements Involving Non-Branch Locations 59
7.2 Outgoing Correspondence (NTM 98-11) 59
Correspondence Defined 59
Prohibition against Sending Correspondence from Personal Computers and Other Non-Firm Facilities 59
Review and Approval - Outgoing Written Correspondence 59
Independently Prepared Reprints 60
Content Guidelines 60
Form Letters and Group Emails 61
Letters and Notes 61
Facsimiles 61
7.3 Incoming Correspondence 61
Review of Incoming Correspondence 61
Personal Mail 61
7.4 Legends And Footnotes 62
7.5 Internal-Use Only Information 62
7.6 Investment Analysis Tools (NTM 04-86) 62
7.7 Recorded Phone Solicitations 62
7.8 Cold Calling Restrictions 62
Introduction 62
Requirements and Restrictions 62
Prohibited Activities 63
Do Not Call Lists 63
Established Business Relationship 63
National Do-Not-Call Registry 64
State Restrictions 64
Internal Do Not Call List 64
7.9 Cold Callers (NTM 95-54) 64
Cold Caller Requirements 64
Permissible Cold Caller Activities 64
Prohibited Cold Caller Activities 65
Telemarketing Restrictions 65
Scripts 65
7.10 Public Speaking 65
General Guidelines 65
Approval 65
Radio, TV, and Other Extemporaneous Presentations 66
Securities Sold by Prospectus 66
7.11 Electronic Communications (NTM 01-23 and 98-11) 67
Electronic Mail 67
Commercial Email Procedures (CAN-SPAM Act of 2003) 67
Review and Approval 67
Information Required On Outgoing Electronic Mail 67
Designated Reviewer 68
Branch/Department Supervisor's Responsibilities 68
Monitoring Procedures 68
Email Policy Violations 69
Record Retention 69
Education and Training 69
Special Reviews 70
Bulletin Boards, Web Sites and Other Electronic Communication Systems 70
bfinance Web Site 70
RR Web Sites 70
7.12 Identification Of Sources 70
7.13 Electronic Communications Policy 70
Introduction 70
Summary of Policy 70
Electronic Communications Defined 71
Social Networking Sites (Regulatory Notice 10-06) 71
Instant Messaging (NTM 03-33) 71
Guidelines for Proper Use 72
Electronic Communications are not Private 72
Communications Must Conform to Appropriate Business Standards and The Law 72
Electronic Communications are Business Communications and Should be Treated as Such 72
Encryption 73
Special Requirements/Restrictions 73
Record Retention Requirements 73
Required Pre-Use Review and Approval 73
Monitoring, Audit and Control 74
Email 74
System Maintenance 74
Attachments 74
Restrictions on Unsolicited Emails (CAN-SPAM Act of 2003) 74
Internet 75
Chat Rooms 75
Failure to Comply 75
Consent To Policy 76
7.14 Advertising and Publishing Activities 76
Section 8 PROTECTION OF CUSTOMER INFORMATION 77
8.1 Customer Privacy Policies and Procedures (SEC Regulation S-P) 77
Introduction 77
"Public" vs. "Nonpublic" Personal Information about Customers 77
Sharing Nonpublic Financial Information 77
Annual Notification 77
Protection of Customer Information And Records (SEC Regulation S-P, Rule 30(a) and SEC Release No. 34-50781; Fair and Accurate Credit Transactions Act of 2003, Section 216) 78
Disposal of Consumer Report Information and Records (SEC Regulation S-P, Rule 30(b) and SEC Release No. 34-50781; Fair and Accurate Credit Transactions Act of 2003, Section 216) 78
8.2 Identity Theft Program (Fair and Accurate Credit Transactions Act of 2003, Section 114 and 315) 78
8.3 SEC Regulation S-AM 79
Introduction 79
Opt Out Provision 79
Supervision 79
8.4 Holding Customer Mail 80
8.5 Encryption Requirement When Sending Documents to FINRA 80
Section 9 ANTI-MONEY LAUNDERING (FINRA Rule 3310; Bank Secrecy Act) 81
9.1 Introduction 81
9.2 AML Compliance Officer 81
9.3 Definitions 81
9.4 Independent AML Program Testing 81
9.5 Employee AML Program Education 81
9.6 Customer Identity Verification 81
Required Customer Information 82
Customer ID Verification for Accounts for Individuals 83
Customer Identification Third Party Accounts 83
Omnibus and Sub-Accounts (SEC Q&A Regarding the Broker-Dealer Customer Identification Program Rule, October 1, 2003) 84
Accounts for Non-Individuals 84
Additional Identifying Information for Non-Individuals 84
Non-Documentary Methods of Verifying Customer Identification 85
Additional Verification For Certain Customers 85
Lack of Acceptable Customer ID Verification 85
Customer Notice 86
9.7 OFAC List and Blocked Property (Dept. of Treasury, various statutes) 86
Prohibited Transactions 86
Blocking Requirements 86
Monitoring Procedures 87
Other Requests to Monitor Accounts 87
Blocking Property 87
Reporting Blocked Property and Legal Actions 87
Legal Actions involving Blocked Property 88
Blocking Disbursements 88
Monitoring Procedures 88
Other Requests to Monitor Accounts 88
Role of Operations Personnel 88
9.8 Acceptance of Cash Deposits 89
Cash Equivalents 89
Reporting Requirements (Exchange Act Rule 17a-8) 89
Transactions Involving Currency over $10,000 89
Transactions involving Currency or Bearer Instruments over $10,000 Transferred into or Outside the U.S. 90
State Reporting Requirements 90
Foreign Financial Accounts 90
Recordkeeping Requirements 90
Funds Transfers 90
National Security Letters 91
9.9 Detecting Potential Money Laundering 91
9.10 Information Sharing Between Financial Institutions (USA PATRIOT Act Sec. 314) 91
9.11 Suspicious Activity Reports (“SARs”) (USA PATRIOT Act Sec. 356; NTM 02-47) 92
Identification of Potential Suspicious Activity 92
SAR Filing Requirement 94
Filing Deadlines 95
Retention of Records 95
Prohibition against Disclosure 95
SAR Sharing with Foreign or Domestic Parent Entities 95
9.12 Requests and Written Notices from Enforcement Agencies 95
Compliance with Federal Banking Agency Information Requests - 120-Hour Rule (USA PATRIOT Act Sec. 319(b)) 96
Compliance with FinCEN Information Requests (USA PATRIOT Act Sec. 314) 96
9.13 Foreign Bank Correspondent Accounts (USA PATRIOT Act Sec. 313; Bank Secrecy Act 103.185) 96
9.14 Customer Identification Program (“CIP”) (USA PATRIOT Act Sec. 326; NTM 03-34) 96
Responsibilities 96
AMLCO Approval Requirements for New Accounts 97
Minimum Identifying Information 98
Accounts for Non-Individuals 98
Additional Identifying Information for Non-Individuals 98
CIP Records 99
Comparison with Government Lists 99
Customer Notice 99
9.15 Correspondent Accounts (USA PATRIOT Act Secs. 312 and 313) 99
Special Due Diligence for Private Banking Accounts (USA PATRIOT Act Sec. 312) 99
Accounts for Senior Foreign Political Figures 100
Enhanced Scrutiny 100
Section 10 INSIDER TRADING (Insider Trading and Securities Fraud Enforcement Act of 1988, Rule 10b-5 under the Securities Exchange Act of 1934, NTM 89-5) 101
10.1 Confidential Information 101
Responsibility for Implementation 101
Questions and Additional Information 101
Confidential Information and Trading Restrictions 103
Preservation of Confidentiality 104
Protecting Confidential Information 104
Access to Office Areas and Physical Separation of Business Units 104
Access to Documents and Technology – Confidential Information 104
10.2 Material Inside Information 105
10.3 The Civil and Criminal Consequences of Misusing material Inside Information 106
10.4 bfinance’s Chinese Wall Policies and Procedures 107
Document and Information Control 107
Control of Sensitive Areas 108
Policies and Procedures 109
Private Side of the Wall 109
Restrictions on Communications 109
Individuals “Above the Wall” 110
Information Barriers between Investment Banking and Public Side Employees 110
Wall-Crossings 110
Effects and Limitations on the Wall-Crosser 110
Wall-Crossing Procedures 111
Inadvertent Wall-Crossings 111
Role of the Compliance Department 111
10.5 The Watch/Restricted List 112
Adding Securities to the List 113
The Grey List and Restricted List 113
Watch/Restricted List Maintenance 114
Watch/Restricted List Access and Confidentiality 114
The Restricted List 114
Restrictions on Listed Issuers or Securities 115
Restricted List Maintenance 116
Exception Policy 116
10.6 Designated Principal Responsibilities Regarding Insider Trading 116
Section 11 FINANCIAL and OPERATIONS ACTIVITIES 118
11.1 Books and Records (Exchange Act Rules 17a-3 and 17a-4) 118
RN 11-19 Books and Records (Effective Dec 5, 2011) 119
Electronic Storage of Records (Exchange Act Rule 17a-4(f)) 120
Notification to Examining Authority (Exchange Act Rules 17(d) and 17a-4(f)(2)(i)) 120
Electronic Storage Media Requirements (Exchange Act Rule 17a-4(f)(2)(ii)) 120
Ability to Retrieve And Reproduce (Exchange Act Rule 17a-4(f)(3)) 121
Electronic Audit System 121
Confidentiality of Electronic Records 121
Availability of Records in Offices 121
11.2 Net Capital Calculation and Reporting (Rules 15c3-1 under the Exchange Act; NTMs 92-72, 93-30, and 99-44) 121
11.3 Reconciliations 123
11.4 Other FINOP Responsibilities 123
Notification Provision for Broker Dealers 123
Financial Deficiency Responsibility 124
Fund and Liquidity (FINRA Regulatory Notice 10-57) 124
Disclosure of Financial Condition to Customers (FINRA Rule 2261) 124
11.5 Fees And Service Charge Disclosures (FINRA Rule 2121) 125
11.6 Fidelity Bonding (FINRA Rule 4360) 125
11.7 RN 11-21 Fidelity Bond (January 2012) 125
11.8 New Accounts 125
11.9 Customer Payments for Purchases 126
Inadvertent Receipt of Customer Funds or Securities 126
Guaranteed Accounts 126
11.10 Disbursements of Funds 126
Disbursements of Funds To Third Parties 126
Letters of Authorization 126
LOA Instructions 127
Issuing Checks to Customers 127
11.11 Safekeeping of Customer Funds and Securities (Exchange Act Rules 8c-1, 15c2-1, 15c3-3 & 17a-13; NTM 99-44) 127
Exemption from 15c3-3 127
Assets at Non-FINRA Member Custodians 127
11.12 Change of Customer Addresses on Accounts 127
11.13 Abandoned Property 128
6.14 Confirmation Disclosures (Exchange Act Rule 10b-10 and FINRA Rule 2232) 128
Confirmation Disclosures (Exchange Act Rule 10b-10) 129
Confirmation Disclosure of Non-Rated Taxable Debt Securities 129
Third Market Confirmations 129
Required FINRA Disclosures (FINRA Rule 2232) 129
6.15 Firm Computers and Computerized Data 129
11.14 Expense-Sharing Agreements (SEC Letter July 11, 2003 to FINRA Regarding "Recording Certain Broker-Dealer Expenses and Liabilities; NTM 03-63) 130
11.15 Solicitation of Proxies (Exchange Act Sec. 14) 130
11.16 Customer Requests for References 130
11.17 Audit Letters 130
11.18 Regulatory Fees and Assessments (Exchange Act Sec. 31; FINRA By-Laws, Schedule A, NTMs 04-63 and 05-11) 130
11.19 New Products (NTM 05-26) 130
New Product Review Checklist 131
11.20 Risk Management (NTM 99-92) 131
Risk Practices Regarding Employment and Employees 131
Background Checks (Regulatory Notice 07-55) 131
11.21 Employee Accounts 131
11.22 Authority 131
11.23 Chief Financial Officer (“CFO”) 132
11.24 Department/Business Unit Managers 132
11.25 Branch Managers 132
11.26 Assignment of Responsibility (FINRA Rule 4523) 132
11.27 New Accounts 133
Section 12 BUSINESS CONTINUITY PLAN 134
12.1 Business Continuity 134
Definitions 134
12.2 Business Continuity Plan (FINRA Rule 4370 and NTM 04-37) 134
Business Continuity Plan 134
Disclosure Requirements 135
Emergency Contact 136
Section 13 BRANCH OFFICE COMPLIANCE 137
13.1 Office Designations 137
Offices of Supervisory Jurisdiction (FINRA Rule 3110) 137
Branch Offices Assigned to OSJs (FINRA Rule 3110) 137
Non-Branch Locations 137
Designation of OSJ/Branch Office Supervisors 138
13.2 Supervision 138
Non-OSJ Supervision 138
Supervision of Non-Branch Office Locations 138
Supervision of Producing Managers (FINRA Rule 3120) 139
13.3 Use of Office Space by Outsiders 139
13.4 Office Records (SEC Rules 17a-3 and 17a-4) 139
Regulatory Requests for Records 140
Changes in Branch Offices 140
13.5 Office Inspections 140
Inspection Cycle 140
Conducting Inspections 140
Heightened Inspection Requirements 141
Reports 142
13.6 Limited Size Exception 142
13.7 Display of Certificates 142
13.8 Availability Of Rules 142
Section 14 ACCOUNT OPENING AND PROCESSING 143
14.1 Customer Account Information (Exchange Act Rule 17a-3(a)(17)) 143
14.2 Addresses On Customer Accounts 144
14.3 Predispute Arbitration Agreements with Customers (NTMs 05-32 05-09) 145
14.4 Accounts Requiring Notification or Consent of Customer's Employer (FINRA Rule 3050) 145
14.5 Post Office Addresses 145
14.6 Changes in Account Name or Designation 145
14.7 Updating Account Information and Periodic Affirmation (Exchange Act Act Rule 17a-3(a)(17)) 145
14.8 Cash and Non-Cash Compensation Policy (FINRA Rules 2310, 2320, 2342 and 5110(a); and NTMs 99-55) 146
Definitions: 146
Approval 146
Types of Permissible Non-Cash Compensation 146
Section 15 PRIVATE PLACEMENTS AND OFFERINGS 148
6.1 Definition of Terms 148
"Private Placement" Defined 148
Section 4(2) of The Securities Act Of 1933 149
Regulation D 149
6.2 Blue Sky Requirements 150
6.3 The Firm’s Participation in Private Placements 150
Due Diligence 150
Agreement with the Issuer 151
Dollar Amount of the Offering and Integration Issues 151
Form D 152
6.4 Sales Of Private Placements 152
Suitability 152
Accredited Investors 152
Non-Accredited Investors 152
Restricted Nature of Private Placement Securities 152
Purchaser Questionnaires 153
Purchaser Representatives 153
Offering Memorandum 153
Oral Representations 153
Offeree Access to Information 153
Limits on Solicitation 154
Investment Seminars or Meetings 154
Subscription Agreements 154
6.5 Member Private Offerings (FINRA Rule 5122, RN 09-27, RN 11-04) 155
Definitions 155
6.6 Sales Pursuant to Exchange Rules 144A 156
Section 16 INVESTMENT BANKING 159
16.1 Creating a Deal File 159
16.2 Investment Banking Compensation 159
Section 17 Foreign Affiliate Activities 160
Exchange Act Rule 15a-6 exemptions 160
Appendix A - Schedule Of Designated Responsibilities 162
Appendix B - Outside Business Questionnaire 166
Appendix C- Employee Brokerage Accounts 168
Appendix D - ANNUAL COMPLIANCE QUESTIONNAIRE 169
Appendix D - New Hire Checklist 174
Appendix E - AML Senior Management Approval 175
Appendix F - Investor Intake Checklist 176
INTRODUCTION
By law, broker-dealers must supervise the activities of their registered and associated persons. This manual is designed to help bfinance US Ltd’s (“bfinance” or the” Firm”) designated personnel ensure compliance with the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”), the Financial Industry Regulatory Authority (“FINRA”), and applicable state jurisdiction(s) where the Firm’s RRs conduct business.
Principals assigned supervisory responsibilities by bfinance (the “Designated Principals”) must make certain the offices they manage adhere to all rules, regulations, and policies applicable to the Firm’s business. The Firm, in turn, will ensure that its Designated Principals are qualified to manage such responsibility prior to their employment. Evidence of such qualifications, including but not limited to Form U4s and resumes, will be kept in the Designated Principals’ files.
bfinance requires it’s Designated Principals and associated persons to understand and apply the policies and procedures as described in this manual and as revised at any point going forward. The importance of providing supervision that ensures consistent compliance with applicable rules and regulations cannot be overemphasized. Should bfinance fall out of compliance or fail to supervise the activities of its associated persons adequately, fines, censures, and other sanctions might be levied against its RRs, its registered principals, or the Firm itself.
bfinance’s Designated Principals will review this manual annually at minimum. Any significant changes to SEC, FINRA, and state rules and regulations, or to the Firm’s internal policies, will be reflected in updates or addenda to this document.
Designated Principals must retain a copy of this supervisory manual in the home office and in the Offices of Supervisory Jurisdiction (“OSJs”). The manual is the exclusive property of bfinance and must be returned should Designated Principals or associated persons terminate their relationship with the Firm for any reason. The contents of this manual are confidential and should not be revealed to any third party without express written consent from the Firm.
Every RR will receive a copy of this manual or will be required to read it upon employment. In either case, the RR must sign an acknowledgement form stating they have read and understood the Firm’s procedures. The Designated Principals assigned to each RR will ensure that these individuals receive the manual for review and/or retention. Copies of the RRs’ acknowledgement of understanding forms will be maintained in their personal files.
DESIGNATION OF SUPERVISORS AND OFFICES
1 Designation of Principals and Qualifications
The Firm has strict guidelines for qualifying its principals and sales supervisors. An individual must have a history of integrity and strong business acumen to be considered for a supervisory position. New applicants for these positions (i.e., those not previously employed by the Firm) must have at least one year of previous supervisory experience in a capacity similar to that for which they are being considered.
The manager who hires or appoints a supervisor is responsible for determining that individual’s qualifications, which include
• being properly registered to supervise the employees and areas of business assigned,
• being knowledgeable of bfinance’s policies and procedures in the appropriate business areas, and
• having experience (or training, if necessary) in supervising the designated business areas.
To ensure an individual is qualified to act as a Designated Principal, which requires knowledge of regulatory requirements and the appropriate products and/or services as well as a commitment to the Firm’s compliance efforts, managers may consider numerous background review areas, including
To ensure an individual is qualified to act as a Designated Principal, which requires knowledge of regulatory requirements and the appropriate products and/or services as well as a commitment to the Firm’s compliance efforts, managers may consider numerous background review areas, including
• review of experience, in particular any experience as a Designated Principal;
• discussions with previous employers;
• review of exam qualifications;
• review of complaint history with bfinance and other firms;
• review of the level of activities the individual engages in; and/or
• discussions with others within the firm regarding the candidate’s commitment level and level of responsibility demonstrated.
At least annually, the Firm’s Chief Compliance Officer or his or her designee will initiate a review of bfinance’s List of Designated Principals to make sure these designations adequately address the Firm’s business. This review will consider, among other things, changes in the Firm’s business, such as sales force size and products and services offered, as well as any regulatory changes since the last annual review.
2 Designation of Principals
This section lists bfinance’s Designated Principals responsible for supervision of the major business areas indicated.
Date: May 25, 2012
|Area/Department Supervised |Name/Title |Location |Effective Date of |
| | | |Supervision |
|Executive Representative |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Chief Compliance Officer (“CCO”) |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Branch Office Review and Examination |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Anti-Money-Laundering Compliance Officer |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|(“AMLCO”) – Primary | | | |
| | | | |
|AMLCO – Alternate |Samuel Gervaise-Jones, Principal | | |
|Compliance and Supervision of Continuing |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Education Requirements | | | |
|Financial and Operations Principal |Ken George, CFO and FINOP |United Kingdom |March 2014 |
|(“FINOP”) and Chief Financial Officer | | | |
|(“CFO”) | | | |
|Hiring |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Overall Supervision of OSJ Principals |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Branch Offices and OSJs |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Ongoing Training of RRs |Samuel Gervaise-Jones, Principal |United Kingdom |March 2014 |
|Registration |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|CRD Electronic Filings/Form Filings | | | |
|Review of Advertising and Sales Material |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Review of Business Continuity Plan (BCP) |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Review of Correspondence |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Review of Electronic Correspondence |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Review of Customer Accounts |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Review of Customer Complaints |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Updates to and Dissemination of Written |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Supervisory Procedures (“WSPs”) | | | |
|Records Management |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Review of Supervisory Controls and |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Procedures | | | |
|Annual Report to Senior Management on |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Firm's Supervisory Controls Procedures, | | | |
|Test Results, and Resulting Changes | | | |
|Operations |David Vafai, CEO , CCO and AMLCO |United Kingdom |March 2014 |
|Product Lines: | | | |
|Private Placements |Samuel Gervaise-Jones, Principal |United Kingdom |March 2014 |
|Investment Banking |Samuel Gervaise-Jones, Principal |United Kingdom |March 2014 |
See Appendix A for a list of the Designated Principals’ specific responsibilities.
3 Designation of Offices
The Firm will designate a Branch Manager with responsibility for each OSJ, supervisory branch office, and nonsupervisory branch office. Office locations that do not meet the Uniform Branch Office Definition and therefore are not registered as branch offices will also be assigned to a Branch Manager.
The OSJ Manager has responsibility for supervising all registered personnel activity. Non-OSJ Branch Managers are responsible for all securities-related activities conducted at their location, including any branch books and records maintained there. Non-OSJ Branch Managers are expected to work with and immediately inform the OSJ Manager of all problems or potential problems discovered.
Tasks requiring individuals with registered principal licensing cannot be delegated to another person unless the designee also maintains the appropriate principal licenses and has sufficient industry experience. The OSJ Manager retains primary responsibility for all supervisory tasks and for ensuring that a designee properly performs assigned supervisory tasks.
The Firm is required to identify each branch office Designated Principal on Form BR. The CCO is responsible for ensuring that such disclosures remain accurate and current.
The Designated Principal will assign a Designated Principal for each type of office and will maintain the list of registered branch offices in a separate file, along with the manager designated to supervise each branch office.
The table below includes bfinance’ branch office locations and the Designated Principal for each office(s):
|Branch Name |Address |# of |# of |Designated Principal |Licenses |Location of Designated |
| | |Registered |Non-Registered | | |Principal |
| | |Reps |Reps | | | |
SUPERVISION AND COMPLIANCE
1 Role of Compliance
The CCO is responsible for defining the tasks necessary to maintain compliance within bfinance , which include, but are not limited to,
• identifying potential conflicts and risks faced by bfinance and recommending controls;
• assisting in developing, updating, and amending the supervisory policies and procedures;
• providing ongoing regulatory and compliance advice to personnel;
• monitoring the activities of bfinance personnel for potential compliance risks;
• performing internal investigations;
• assisting in the testing and verification of supervisory controls;
• providing (or acting as) a liaison to applicable regulatory authorities;
• conferring with legal counsel on compliance and regulatory matters;
• educating and training personnel on compliance and regulatory matters;
• assisting in due diligence reviews of new products and services, changes in business, and other significant matters relating to bfinance ;
• communicating information regarding applicable regulatory requirements and internal policies and procedures throughout bfinance ;
• managing information barriers (“Chinese Walls”) and other measures to prevent insider trading; and
• overseeing the escalation of compliance matters and rule violations.
2 Supervision
Bfinance has established a supervisory strategy, which includes specific supervisory policies and procedures and supervisory controls for those policies and procedures, which are reasonably designed to achieve compliance with regulatory rules.
Supervisory System: bfinance’s internal oversight strategy for compliance includes the designation of supervisors and allocation of responsibilities, the assignment of RRs to appropriate supervisors, the identification of areas of business and the rules that govern those businesses, and the development of written supervisory procedures along with controls for testing and verifying the efficacy of those procedures.
Written Supervisory Procedures: The procedures set forth in the WSP manual (and in other policies or manuals, if referenced in specific chapters) include
▪ compliance procedures for RRs and others that explain rule requirements and prohibitions, as well as internal policies, for the conduct of sales and other activities; and
▪ supervisory procedures that describe what actions supervisors should take to fulfill their ongoing responsibilities.
These controls provide ongoing testing of the effectiveness of the Firm’s supervisory strategy and procedures for maintaining compliance. Internal controls typically involve sampling functions to evaluate efficacy and identify shortcomings, gaps, or other inefficiencies. These controls also provide ongoing assessment of these functions to determine whether they continue to serve their intended purpose.
3 Responsibility
The responsibilities for ensuring the efficiency of bfinance’s supervisory strategy, policies and procedures, and controls are assigned as follows:
▪ The CCO is responsible for establishing and maintaining the supervisory system, policies, and procedures for all areas of the Firm.
▪ The FINOP is responsible for establishing and maintaining systems, policies, and controls regarding financial and accounting procedures and reporting.
4 Controls
Verification and Testing
bfinance periodically conducts tests to verify the effectiveness of its supervisory strategy and controls. The Firm may utilize third-party consultants to conduct these reviews.
Such testing and verification generally involves
• identifying areas to be reviewed annually at minimum;
• developing reviews and a schedule for conducting them;
• assigning responsibility for conducting reviews;
• preparing reports of reviews and providing these reports to management, the audit committee, and other appropriate personnel for potential corrective action; and
• following up on deficiencies in subsequent reviews.
The Compliance Department (“Compliance”) is responsible for these reviews and for maintaining related records that include
• the areas to be reviewed;
• the review schedule;
• the findings reports, including report distribution and supervisor responses to these reports;
• any follow-up or corrective action taken.
Outside Auditors
bfinance’s outside auditors will conduct annual reviews of the Firm’s internal financial and operational controls, as well as its compliance with selected rules and regulations. The FINOP (and other personnel as required) will work with the outside auditors and provide them with any requested information. bfinance’s senior management and audit committee (if an audit committee has been established) will receive the auditors’ report and take responsibility for delegating corrective action on the exceptions noted in it.
The FINOP retains records of outside audits and reports.
5 Maintenance of Written Compliance and Supervisory Procedures
Compliance will maintain and update bfinance’s WSPs and then distribute the revised manual as follows:
• Changes to the Firm’s processes or business activities will be addressed with new procedures. The initial versions of these new procedures may be documented in a memorandum or alert.
• Compliance will review information regarding new or amended rules. New procedures will be drafted to meet these requirements and discussed with the relevant personnel. The updated policies or procedures will be distributed to the Designated Principals as well as all affected personnel. Compliance will conduct this review and make any necessary revisions at least quarterly.
• The changes described above will be incorporated in the WSPs, including the revision date.
• Prior versions of the manual will be archived.
• Senior management will sign off on each version of the final written procedures.
• When policy and procedure changes affect personnel, Compliance will distribute new or revised policies in written form, where practical, and/or by email.
• Compliance will also provide manuals to new employees and obtain receipts to be maintained in employee or other compliance files.
• If a new policy manual is distributed, receipts will be requested and maintained in employee or compliance files.
• Policies may be made available to employees in electronic format.
6 Chief Compliance Officer (FINRA Rule 3130)
bfinance designated the CCO in the List of Designated Principals table above.
7 Annual Compliance Report to Chief Executive Officer (“CEO”)
Compliance prepares an annual compliance report for the CEO (or equivalent officer).
FINRA Report (FINRA Rule 3130)
The CCO will prepare and provide the CEO (or equivalent officer) with an annual report that includes a review of bfinance’s supervisory strategy and procedures and key compliance issues. The CCO will meet with the CEO to discuss and review the report and will meet at other times, as needed, to discuss other compliance matters.
The annual report will be provided to the board of directors (or equivalent senior management) and the audit committee, if one has been established.
Annual Compliance and Supervision Certification (FINRA Rule 3130)
Annually, after receipt and review of the annual review report, the CEO (or equivalent) will certify that bfinance has in place processes to establish, maintain, review, test, and modify written compliance policies and the WSPs reasonably designed to comply with regulators’ rules. Certification does not by itself establish line supervisory responsibility for those involved in the certification process.
8 Supervision of Producing Managers' Customer Account Activity (FINRA Rule 3120)
Day-to-day customer account activity conducted by office managers, sales managers, regional or district managers, or anyone performing similar supervisory functions (“producing managers”) is subject to review and supervision by someone senior to or independent of the producing manager. Persons conducting any level of customer account activity may be designated as producing managers.
“Independent” means someone who
• does not report directly or indirectly to the person supervised,
• is located in an office other than that of the person being supervised,
• does not otherwise have supervisory responsibility over the activity being reviewed,
• is not compensated directly or indirectly (in whole or part) on revenues accruing from the activities supervised, and
• alternates the review responsibility with another qualified person at least every two years.
The producing manager’s supervisor (whether senior to the manager or an independent person) must be qualified to conduct the assigned reviews.
Reviews to be Conducted
Compliance will determine the supervisor reviews of producing managers depending on the nature of the customer account activity. Supervision will be substantively comparable to what is done for other RRs engaged in similar customer account activity. Such reviews are described throughout this manual.
For his or her reviews, the CCO will
• determine on a monthly basis, if an independent supervisor has NOT been designated, the 20-percent threshold for heightened supervision,
• maintain ongoing designations for the supervisors of producing managers, and
• maintain records of who the producing managers are, who supervises them, and any heightened supervision that occurs.
The producing manager’s supervisor will
• conduct heightened supervision as required,
• conduct ongoing reviews as dictated by the type of activities, and
• maintain records of such reviews, including all related memos and emails, as well as a monthly checklist as described below.
Compliance will determine the areas to be supervised and incorporate them into a producing manager supervision checklist or similar document to be completed by the supervisor, retained in the supervisor’s files, and reviewed periodically by Compliance and/or as part of an office inspection.
Heightened Supervision
Under FINRA rules, a producing manager supervised by someone who is NOT independent is subject to “heightened supervision” under certain conditions. The requirement applies to a producing manager who generates 20 percent or more of the revenue of the business units supervised by the producing manager’s supervisor over a rolling 12-month period.
The CCO will determine the nature and scope of heightened supervision, which may include
• unannounced supervisory reviews,
• an increased number of reviews during a specified period,
• multiple reviewers, and
• other reviews as appropriate.
The CCO will notify the producing manager’s supervisor, in writing, of the heightened supervision requirements.
Limited Size and Resource Exception
Where bfinance is so limited in size and resources that it cannot have associated persons who can conduct producing manager supervision that are senior or otherwise independent from the producing manager, such supervision can be conducted by a principal sufficiently knowledgeable of the Firm’s supervisory control procedures. If this exception is to be used, the CCO must verify that no person senior or otherwise independent of the producing manager is available to supervise the producing manager’s customer account activity.
As FINRA expects the exception to be applied narrowly, the CCO must approve a document evidencing that the Firm is of such limited size and resources that it cannot comply with the general requirement. This document must describe how the exception applies, i.e., noting whether the exception is to be used for all or only part of the Firm’s producing manager supervisory obligations; explaining the factors used to determine that complete compliance with all provisions of the general supervisory requirement is not possible; and affirming that the policies and procedures in place with respect to supervising producing managers comply, to the extent practicable, with the general requirement.
Prior to relying on the exception, bfinance is required to notify FINRA within 30 days of the time that the Firm starts to use the limited size and resources exception and annually thereafter. Each ensuing annual notification will be effective no later than on the anniversary date of the previous year’s exception notification. bfinance is also required to notify FINRA within 30 days of ceasing to use the limited size and resource exception. The Designated Principal is responsible for ensuring compliance with these provisions. He or she must submit the appropriate notification through FINRA’s Rule 3012 Exception Notification System and maintain records as applicable that evidence such notifications, e.g., printed confirmation pages.
9 Outsourcing Activities
Initial Due Diligence
The Designated Principal will conduct a due diligence analysis of each prospective third-party service provider the Firm is considering using for an outsourced practice or process. The analysis will determine the potential impact of such use on the Firm’s compliance with all applicable federal securities laws and regulations and FINRA rules. The Designated Principal will assess whether the outsourcing arrangement is consistent with the Firm’s policy on what activities can be effectively outsourced, and he or she will determine, with senior management, whether it is appropriate for such activities to be outsourced. In particular, the Designated Principal must determine if the practice or process represents “covered activities” (which could require registration and association with the Firm).
In determining the appropriateness of outsourcing a particular activity, the Designated Principal will consider, as applicable,
• the financial, reputational, and operational impact on the Firm if the third-party service provider fails to perform;
• the potential impact of outsourcing on the Firm’s provision of adequate services to its customers; and
• the impact of outsourcing the activity on the Firm’s ability and capacity to conform to regulatory requirements and changes in such requirements.
This analysis will provide the basis for deciding whether the covered activity will be outsourced. That decision will also be based on whether the manner of outsourcing complies with applicable regulations and whether the Firm can effectively supervise the activity. The final decision will be documented and the documentation maintained for purposes of service provider due diligence.
The Designated Principal will also evaluate or take responsibility for supervising the evaluation of service providers to determine their qualifications, experience, and expertise in the practice or process, along with other factors critical to the activity such as business continuity arrangements. The Firm’s predetermined performance parameters and requirements will be documented in a separate record, e.g., a “performance standards document.” The evaluation will also identify the process for reporting third-party performance results to the Firm and whether a periodic certification of compliance with the contract terms and applicable regulations is warranted.
The Designated Principal will then be responsible, in consultation with senior management and/or other applicable principals of the Firm, for determining whether the service provider is capable of effectively performing the outsourced activities in compliance with applicable regulations. If the functions to be performed are considered covered activities, the Designated Principal will be responsible for presenting and recommending the manner in which the Firm will supervise the service provider and applicable representatives.
The Designated Principal is also responsible for ensuring that the provider contract to be executed with the vendor references the Firm’s performance standards document, including applicable quantitative and qualitative performance standards and statistics. The agreement should also address customer information confidentiality, termination provisions, and compliance with regulations relevant to the activities (including covered activities). In the case of covered activities, the agreement must stipulate, as necessary, that FINRA and all other applicable regulators have complete access to the service provider’s work product for the Firm, as would be the case if the covered activities had been performed directly by the Firm.
Upon execution of any provider agreement, the Designated Principal must ensure that the Firm’s WSPs are amended to reflect the service provider’s activities and the resulting supervision. This includes the delegation of supervisory functions within the Firm, the frequency of supervision, and the documentation requirements for the supervision.
Monitoring
After a third-party service provider is selected, the Firm has a continuing responsibility to oversee, supervise, and monitor the provider’s performance of covered activities. The Designated Principal is responsible for monitoring the providers’ compliance with the agreement terms and performance standards document and for assessing the provider’s continued fitness and ability to perform the covered activities being outsourced. Such supervision will be evidenced on at least an annual basis.
The Designated Principal is also responsible for ensuring the provider’s (and RRs’) compliance with applicable regulations (related to the service provided) and the Firm’s WSPs pursuant to the delegated supervisory activities. Such evidence of supervision will be documented on at least an annual basis. In addition, the Designated Principal is responsible for coordinating access and examination of records and functions performed by the service provider by FINRA or other applicable regulators. Any regulatory examination findings related to the service provider’s performance should be addressed in the Firm’s supervisory procedures. Those procedures should address the ongoing monitoring of the service provider’s performance as well.
On at least an annual basis, each service provider will be formally evaluated by the Designated Principal and/or senior management for compliance with
• the terms of the agreement,
• the performance standards document,
• applicable securities regulations, and
• the Firm’s policies and procedures.
As a result of such evaluation, the Firm will document a formal decision with regard to each service provider as to whether the outsourced activity should be discontinued and such functions brought into the Firm for action. If the Firm chooses to continue using the service provider, any changes made to the provider agreement must be documented. In the case of service providers that perform covered activities, the Firm will discuss, as part of its formal decision documentation, the compliance of the provider and its assigned representatives with the Firm’s supervisory procedures and whether such procedures (and supervisory control procedures) should be amended based on the activities performed by the provider during the prior year or period.
EMPLOYMENT, REGISTRATION AND LICENSING
1 Employment
Hiring Procedures
Registered Representative Interview Guidelines
• Hiring managers should consider incorporating the following actions into the hiring process for prospective RRs: Discussing with the applicant the nature of his or her prior customers and the types of securities the applicant sold while associated with prior employers
• Discussing with the applicant any customer complaints made with regard to and/or regulatory actions taken toward him or her to determine the merit, to the extent practicable, of these complaints or actions before hiring
• Asking the applicant to detail the nature of pending proceedings, customer complaints, regulatory investigations, or arbitrations, if any, that are not listed in the CRD
• If applicable, discussing the reasons for the applicant’s frequent change of employers
• If applicable, obtaining the RR’s prior year W-2 and U5 from his or her present employer
• Asking the RR whether he or she signed an employment contract with his or her present employer and if so, obtaining a copy from the applicant
Prospective RRs Require Pre-Clearance by Compliance
Information from interviews with prospective RRs should be referred to Compliance for review of each individual’s CRD record. This review requires written pre-hire authorization from the RR. To provide this authorization, the applicant may sign page 4 of Form U4 or a separate authorization document. Any information on events including, but not limited to, complaints and/or regulatory actions obtained by Compliance from this review will be delivered to the hiring manager for his or her consideration in deciding whether to offer employment to an applicant.
Qualification of Supervisors (FINRA Rule 3110)
The manager who hires or appoints a supervisor is responsible for determining that the individual is qualified for the supervisory position. Qualifications include
• proper registration to supervise the assigned employees and business areas,
• a thorough knowledge of bfinance’s policies and procedures in the appropriate areas of business, and
• the appropriate experience or training needed to supervise the designated business areas properly.
Compliance is responsible for identifying registration requirements and determining the need for additional registrations. Supervision may be assumed only after the individual has met the necessary regulatory requirements.
Background Investigation (FINRA 3110)
bfinance will make an adequate independent investigation of all persons applying for registration or association with the Firm. Investigations may be conducted via various resources to assess an applicant’s overall qualifications and work history. Such investigations may include
• obtaining prior employment history for a minimum of the last three years, including possible contact with former employers;
• for registered persons, obtaining a copy of the applicant’s Form U5 from the prior firm or conducting an inquiry for U5 information through the CRD system;
• for registered persons currently or previously employed with a Futures Commission Merchant (“FCM”) or Introducing Broker (“IB”) that is registered as a commodities firm but “notice-registered” with the SEC because of security futures business, obtaining and reviewing a copy of Commodity Futures Trading Commission (“CFTC”) Form 8-T (Notice of Termination of Associated Person, NFA Associate, Branch Office Manager, Designated Principal or Principal);
• searching for any matches against the disciplined firm list (refer to Section 3.6, “Taping Rule,” for further information);
• having Compliance review any previously unknown “Yes” answers or terminations for cause on Form U5 or similar information reported on CFTC Form 8-T; and
• obtaining a credit report for employment screening (these reports provide valuable insight into a potential employee’s credit background with regard to 17 significant calculations, public record information, and consumer trade lines).
A record of contact with prior employers will be included on the RR’s Form U4 and/or in the applicant’s personnel or registration file. Copies of Form U5, the Web CRD inquiry, or CFTC Form 8-T will be maintained in the RR’s file and will include the date of the information was reviewed and the reviewer’s initials. bfinance’s reviews will follow the guidelines set forth in the “New Hire Checklist” listed as Appendix C.
Fingerprints (Exchange Act Rule 17f-2; FINRA Rule 1010, NTM 05-39)
Compliance will obtain and submit fingerprints on all registered and associated personnel for receipt by CRD within 30 days of filing Form U4.
If fingerprints are not received by the CRD within 30 days, the employee must cease engaging in activities that require registration. Compliance will notify the appropriate supervisor of deficiencies, and the supervisor is responsible for restricting the applicant’s activities until fingerprints have been received by CRD.
Policies and Procedures
At the time of hire, Compliance will provide every employee with a current copy of bfinance’s policies and procedures either in hard copy or by notifying the employee of the location of policies and procedures in electronic form. Every employee will be asked to sign a written acknowledgement that the policies were received and they are responsible for complying.
New Employee Questionnaire
New employees will be asked to complete bfinance’s Annual Compliance Questionnaire listed in Appendix C. Any "Yes" answers will be referred to Compliance for review.
Termination Procedures (FINRA By-Laws Article V, Section 3 and Regulatory Notice 10-39))
Notification to Compliance
Whenever an employee terminates employment with bfinance, the Designated Principal must immediately notify Compliance and Human Resources. Notification to Compliance regarding registered employees should include
• the person’s name and RR number(s);
• the type of termination (e.g., voluntary, permitted to resign, discharged);
• if the termination is not voluntary, the reason for termination;
• the date of termination; and
• any known compliance problems at the time of termination.
Retrieval of bfinance Property
Designated Principals are responsible for retrieving all bfinance property from terminated employees. This property includes, but is not limited to, office keys, Firm credit cards, computer files, and customer files.
Reassignment of Accounts
Designated Principals are responsible for reassigning the accounts of terminated RRs.
Responding To Customer Inquiries
With regard to customer inquiries following a termination, Designated Principals should instruct branch or department employees, including the RRs receiving the reassigned accounts, to indicate only that the employee is no longer with bfinance. No details regarding the departure should be given to customers or anyone else outside bfinance unless authorized by Compliance.
Form U5
Compliance is responsible for filing a Form U5 for any terminated registered employee. Compliance will also send, within 30 days of termination, a copy of the Form U5 to the former employee via U.S. Certified mail. In addition, Compliance will file an amended Form U5 if it learns that indicate the initial U5 filing was incomplete or inaccurate.
The CCO is responsible for ensuring that the Form U5s filed are complete and accurate. The CCO must also provide sufficiently detailed answers to Form U5 questions such that reasonable persons will be able to understand the circumstances that triggered any “Yes” responses in the form.
2 Registration and Licensing (FINRA Rule 1122)
CRD Electronic Filings (FINRA Rule 1010)
bfinance has designated one or more employees with authority over registration functions, as named in bfinance’s Designation of Supervisors chart. Any supervisor of electronic filings is a registered principal or a corporate officer and is responsible for review and approval of electronic filings and acknowledging electronically that the forms are filed on behalf of bfinance and its associated persons.
Registration Requirement
All individuals engaged in activities (including selling or trading products such as stocks and bonds) are subject to the registration requirements of self-regulatory organizations (“SROs”) or other regulators. These individuals must complete the necessary registration and licensing prior to engaging in such activities. RRs may not conduct business with public customers until the required registrations or licenses are in effect.
RRs who assume duties that require registration with FINRA as a principal have 90 calendar days to pass the appropriate principal examination.
Requests for Waivers
Regulators seldom grant waivers for registration and licensing training or examination requirements. In the few exceptions, the candidate for registration or licensing must demonstrate comparable work experience or have successfully completed other examinations that could, in the regulator’s view, satisfy registration and licensing requirements.
Any requests for waivers will be submitted by Compliance.
State Registrations
RRs must be registered in the state from which they conduct business. They may also be required to be registered in other states where customers are domiciled. Most states require successful completion of the Series 63 Uniform State Agent Securities Law Examination. Successful completion of the exam does not automatically confer registered status. An application must be made to CRD to obtain each state registration.
The Designated Principal is responsible for identifying transactions in states where registration may be required.
Parking Registrations
bfinance does not permit individuals to “park” licenses. Parking occurs when bfinance maintains a registration on behalf of an individual who does not work for bfinance or who does not need that registration for their job function. Registration status will be retained only for those persons who require it. bfinance may, however, maintain registration for legal, compliance, or other non-sales employees as permitted under regulatory rules.
Form U4 (FINRA Rules 1010 and FINRA Rule 2263)
All applicants for registration must complete Form U4. The RR is responsible for ensuring the accuracy of the U4 information. In addition, he or she must promptly notify bfinance of any updates that may require an amendment to Form U4.
When an applicant signs a new or amended U4, bfinance will provide the applicant with a Form U4 Disclosure to Associated Persons. This document explains the pre-dispute arbitration clause included in Form U4.
Series 79
Because of the type of activities that bfinance will conduct, persons fulfilling the following functions will be required to obtain a Series 79 license:
▪ Advise on or facilitate debt or equity offerings through private placement or public offering including:
o origination,
o underwriting,
o marketing,
o structuring,
o syndication,
o pricing of suction securities, and
o managing the allocation and stabilization activities of such offerings; or
▪ Advise on or facilitate:
o mergers and acquisitions,
o tender offers,
o financial restructurings,
o assets sales,
o divestitures
o other corporate reorganizations or business combination transactions, including but not limited to rendering a fairness, solvency or similar opinion.
The CCO will evidence the assessment of this licensing requirement when he, or another registered principal, signs-off on the Forum U4.
Series 99
FINRA identified the following covered person categories as Operations Professionals subject to the Series 99 licensing requirement:
▪ Senior management with direct responsibility over the covered functions
▪ Any person designated by senior management, as specified in FINRA Rule 1230(b)(6)(A)(i), as a supervisor, manager, or other person responsible for approving or authorizing work involving the covered functions
▪ Persons with authority or discretion to commit a member firm’s capital or a member firm to any material contract or agreement (written or oral) related to the covered functions
FINRA defined the covered functions as follows:
▪ Client on-boarding (customer account data and document maintenance)
▪ Collection, maintenance, re-investment (e.g., sweeps), and disbursement of funds
▪ Receipt and delivery of securities and funds, including account transfers
▪ Bank, custody, depository, and firm account management and reconciliation
▪ Settlement, fail control, buy ins, segregation, possession, and control
▪ Trade confirmation and account statements
▪ Margin
▪ Stock loan/securities lending
▪ Prime brokerage (services to other broker-dealers and financial institutions)
▪ Approval of pricing models used for valuations
▪ Financial control, including general ledger and treasury
▪ Contributing to the preparation and filing of financial regulatory reports
▪ Defining and approving business requirements for sales and trading systems and any other systems related to the covered functions, and validation of these systems as meeting such business requirements
▪ Defining and approving business security requirements and policies for information technology—including, but not limited to, systems and data—in connection with the covered functions
▪ Defining and approving information entitlement policies in connection with the covered functions
▪ Posting entries to a member’s books and records in connection with the covered functions to ensure integrity and compliance with the federal securities laws and regulations and FINRA rules
The CCO is responsible for determining and documenting, based on a person’s activities and responsibilities, whether such persons would be considered covered persons subject to the Operations Professionals requirements. Documentation of the determination will be maintained by the CCO.
The individual(s) identified for registration for the Series 99 license have several ways to comply with the requirement:
▪ They can opt into the Series 99 license without having to take the exam if they hold any one of the licenses FINRA listed in the RN 11-33 exemption section. These include the following “registered representative” licenses:
o Investment Company Products/Variable Contracts Representative (Series 6)
o General Securities Representative (Series 7)
o United Kingdom Securities Representative (Series 17)
o Canada Securities Representative (Series 37 or 38)
▪ Covered persons may also be exempted from the Series 99 exam if they hold one of the following “principal” licenses:
o Registered Options Principal (Series 4)
o General Securities Sales Supervisor (Series 9/10)
o Compliance Officer (Series 14)
o Supervisory Analyst (Series 16)
o General Securities Principal (Series 24)
o Investment Company Products/Variable Products Principal (Series 26)
o Financial and Operations Principal (Series 27)
o Introducing Broker-Dealer Financial and Operations Principal (Series 28)
o Municipal Fund Securities Limited Principal (Series 51)
o Municipal Securities Principal (Series 53)
▪ Individuals identified for registration for the Operations Professional license may take one of the alternative license examinations and then opt into the Series 99.
Amendments to Forms U4 or U5
When an RR advises the Firm of events that may require amendments to Form U4, Compliance will determine whether disciplinary actions, complaint matters, or other issues require the filing of such amendments. Compliance is also responsible for identifying disciplinary or complaint matters to be reported on Form U5 termination notices, including amendments required after termination. The CCO or his or her designee will review all U4s quarterly to ensure they are up to date.
Assignment of RR Numbers
The Operations Department (“Operations”) assigns RR numbers. Individuals who are not yet registered with bfinance will not be assigned numbers. A RR number may be assigned prior to registration approval when customer accounts are being transferred and the number is needed for the transfer. However, that number is not approved for conducting business until all registration approvals have been received.
For documentation purposes, the Firm will maintain a list that shows, for each associated person, every office where that person regularly conducts business, all internal identification numbers for that person, and the CRD number assigned to that person.
3 Statutorily Disqualified Persons (Exchange Act Sec. 3(a)(39) & Rule 19h-1; FINRA By-Laws Art. III, Sections 3 and 4)
Individuals may become subject to statutory disqualification as a result of a felony conviction or a regulatory suspension, registration revocation, or injunction (including actions by domestic regulators such as the CFTC and by foreign regulators). A statutory disqualification is defined in Sections 3(a) and 19(b)(4) of the Exchange Act.
Hiring a Statutorily Disqualified Person
All prospective employees (including those engaged solely in clerical and/or administrative activities) are subject to background investigations that include the identification of potential reasons for statutory disqualification. Managers should consult with Compliance prior to hiring an individual subject to a statutory disqualification. Compliance will review the nature of the statutory disqualification and identify the special supervision that may be required upon hiring.
Regulatory Filings
Compliance is responsible for completing and filing the necessary regulatory form or application, which a senior officer of bfinance must sign. A hearing may be required prior to approval of the individual’s association with bfinance. The individual may not conduct any activities requiring registration until bfinance receives approval from the appropriate regulatory authorities.
Supervision
Compliance will establish procedures to carry out the supervision required under agreement with the SRO reviewing the disqualified person. It must also document the supervision conducted by the Designated Principal. The supervisor assigned to monitor the statutorily disqualified person will receive a copy of the supervision procedures and will be responsible for carrying them out.
Reporting Statutory Disqualifications
When an employee becomes subject to a statutory disqualification, Compliance will file the necessary registration updates and, in addition, will make the required notification on the quarterly complaint report to regulators consistent with those SROs’ reporting requirements.
4 Broker-Dealer Registration
Form BD
Compliance is responsible for updating Form BD when necessary and filing with the required SROs and other regulatory agencies.
Change in Ownership, Control, Or Business Operations
When bfinance anticipates a material change in its business, Compliance will file requests for approval to the appropriate SROs. Events that require approval include merger with or acquisition of another broker-dealer or acquisition of 25 percent or more of the assets of another dealer; a change in ownership or control; and a material change in business operations.
bfinance operates under a FINRA Membership Agreement and will conduct business consistent with the agreement. Compliance will contact FINRA if a change is necessary.
Executive Representative (FINRA By-Laws Article IV, Section 3)
The Executive Representative, David Vafai, will file the required executive representative designation with FINRA. This information will be reviewed on an annual basis or within 30 days from effecting any change. The FINRA Contact System (FCS) will be updated to reflect the designations of principals that must be report to FINRA.
5 Heightened Supervision
bfinance will institute heightened supervision for RRs or others when appropriate. The following sections describe bfinance’s procedures for identifying RRs subject to heightened supervision and the types of supervision that may be conducted.
Identifying RRs for Heightened Supervision
Compliance is responsible for identifying RRs who may require heightened supervision. These individuals are identified when hired or when they become subject to regulatory action and/or a pattern of customer complaints. Unregistered individuals who were previously registered and the subject of customer or regulatory complaints are also subject to heightened supervision.
Criteria for Identifying Candidates for Heightened Supervision
The criteria listed below will trigger a review by Compliance to determine whether an RR should receive heightened supervision. Pending and resolved matters will be considered. These criteria are subjective and the details of the complaints and/or regulatory actions must be taken into account in determining the necessity for heightened supervision.
• Three or more customer complaints (including written complaints, arbitrations, and other civil actions) alleging sales practice abuse within the past two years
• A complaint filed by a regulator
• An injunction in connection with an investment-related activity
• A determination by the CCO that the associated person should be more closely monitored
• A termination for cause or permission to resign from a former employer where the termination appears to involve a significant sales practice or regulatory violation
Heightened Supervision Memorandum
When a candidate is identified for possible heightened supervision, Compliance, in consultation with the RR’s supervisor, will consider whether heightened supervision will be established. After the determination is made, Compliance will prepare a memorandum outlining the action taken (or not taken).
In instances where bfinance determines that its existing supervision is adequate to provide oversight of the candidate, Compliance will document in the memorandum the reasons why this is so. When heightened supervision is deemed necessary, Compliance will outline the supervision to be conducted (including type, frequency, time period, and form of documentation) in the memorandum and provide copies to the RR and to his or her supervisor. The representative and the supervisor will sign and return their copies of the memorandum to Compliance.
Scope of Potential Heightened Supervision
Heightened supervision will be established after bfinance considers the specifics that apply to the RR in question. The heightened supervision defined by Compliance may take many forms. The list of examples below does not limit or prescribe how heightened supervision should be structured for any one RR, since each case must be reviewed and the form of supervision determined individually.
• Limits on type of business (e.g., options, futures)
• Limits on types of accounts (e.g., discretionary, certain age groups, or other demographics)
• Verification with customers of new account information when accounts are opened
• Preapproval of some or all trades entered
• Preapproval of certain types of accounts
• Contact with customers by the RR’s Designated Principal
• Preapproval of all written public communications originated by the RR
• Extra training or continuing education in areas subject to heightened supervision
• Assignment of the RR to a “mentor” or partner
Certification by RR's Supervisor
During the term of heightened supervision, the RR’s supervisor will certify to Compliance, in writing, that the heightened supervision has been conducted. Compliance will determine the form and frequency of certification and explain that determination in the Heightened Supervision Memorandum provided to the supervisor.
6 Taping Rule
FINRA requires member firms to establish supervisory procedures to include the tape recording of conversations when the firm has hired more than a specified percentage of registered persons from certain firms[1] that have been expelled or that have had their broker-dealer registrations revoked for violations of sales practice rules.
The requisite percentage varies depending on the size of the firm, from 40 percent for small firms to 20 percent for a larger firm. The parameters to determine whether a firm is subject to the Taping Rule are as follows:
• For firms with between five and 10 representatives: 40 percent or more of its representatives[2] have been employed by one or more Disciplined Firms within the last three years
• For firms with between 10 and 20 representatives: four or more of its representatives have been employed by one or more Disciplined Firms within the last three years
• For firms with 20 or more representatives: 20 percent or more of its representatives have been employed by one or more Disciplined Firms within the last three years
At this time, the Firm is not subject to this provision of the Rule. The Designated Principal will conduct a regular review, annually at a minimum, to determine whether the Firm is subject to these provisions. To do this, he or she will download the list of expelled firms from the FINRA website and then search for matches with any existing RRs. Depending on the number of such representatives registered with the Firm, the Designated Principal will initial the list of expelled firms as evidence of review.
In the event that the Firm becomes subject to the Taping Rule, bfinance has up to 60 days from the date notice is received from FINRA or the date the Firm obtains actual knowledge that it is subject to the Rule’s provisions to establish and implement the required supervisory procedures, including installing taping systems. The Firm does have a one-time opportunity to adjust staffing levels to fall below the prescribed threshold levels and thus avoid the Rule’s application (often referred to as the “opt-out provision”). This adjustment must be completed within 30 days from the date of receiving notice from FINRA or obtaining actual knowledge that it is subject to the Rule’s provisions. Once the Firm has made the reductions, it is not permitted to rehire the terminated individuals for at least 180 days. Alternatively, the Firm could submit an exemption request to FINRA within 30 days of receiving notice from FINRA or obtaining actual knowledge that it is subject to the Rule’s provisions.
TRAINING AND EDUCATION
1 Annual Compliance Meeting
As required by FINRA rules, RRs are required to attend an annual compliance meeting or interview.
2 Continuing Education
Registered employees are subject to SRO continuing education requirements composed of two distinct elements. Registered employees are required to complete both elements at specified time intervals. The two elements are:
Regulatory Element: This element is administered by regulators via computer at designated testing centers.
Firm Element: All registered employees dealing with public customers and their supervisors are required to complete continuing education administered by bfinance.
3 Regulatory Element
Who is Subject to the Requirements
All registered persons are subject to the regulatory element.
When Requirements must be Completed
The regulatory element is to be completed within 120 days of the 2nd anniversary of the individual's original registration date and every three years thereafter. For registered persons who become subject to statutory disqualification or disciplinary action as defined under the rules, the regulatory element must be completed within 120 days of the posting date of the disciplinary action and every three years after that date.
Regulatory Element Contact Person
Compliance or a designated person responsible for registration will notify FINRA of the name and email addresses of the contact person to receive CRD notices.
CRD Notices and Appointments for Training Sessions
Compliance is responsible for notifying employees of pending Regulatory Element requirements and the employee is responsible for scheduling training sessions at designated training centers. CRD notices of completion of the Regulatory Element are retained in the registered person's registration file.
Registered Persons Who Fail To Complete Requirements
Registered persons who fail to complete the requirements of continuing education cannot conduct any duties that require registration or earn commissions or other compensation related to such activities. Registrations are considered "inactive" until continuing education requirements are completed.
The Designated Principal will notify affected persons and their supervisors by phone and written memorandum when their registration becomes inactive and when the requirement is satisfied and inactive status is lifted. Accounting/Commissions also will be notified by memorandum. Copies of memos will be retained in the individual's registration file.
Tracking
bfinance will ensure that its current and any future registered persons promptly complete FINRA’s Regulatory Element within their 120-day window. bfinance will deem any registered person who has not successfully completed the Regulatory Element within the allotted time to be inactive and prohibited from soliciting securities. The Firm monitors registered persons Regulatory Continuing Education requirement by monitoring the following reports on WebCRD:
• Approaching CE Requirement – lists those persons whose Regulatory CE window will open soon.
• CE 2-Year Termed – lists those whose registrations have been terminated. These persons CANNOT have customer contact or otherwise act in the capacity of a Registered Person.
• CE Inactive – lists those persons whose registrations are inactive due to a failure to complete their Regulatory Element prior to their Window end date. These persons CANNOT have customer contact or otherwise act in the capacity of a Registered Person. Does not list transfers or new hires.
• CE Satisfied – lists those that have completed their required session.
• Currently CE Required – lists those who have a current open window.
• Current Individual Deficiencies – lists new hires who are inactive. New hire inactives do not display on CE Inactive list.
The CCO currently subscribes to FINRA notifications that will automatically send an email when a person is approaching their window end date.
4 Firm Element
Who Is Subject To the Requirements
All registered persons who do business with the public and their supervisors are subject to the firm element. Firm element continuing education is required regardless of the length of registration or employment in the securities industry.
Firm Requirements
bfinance is required to:
▪ Identify job functions and persons subject to the requirement;
▪ Prepare an annual needs analysis including gathering information about products and services and training topics;
▪ Determine training objectives;
▪ Develop a written training plan;
▪ Implement the training plan;
▪ Retain a record of participation;
▪ Develop a method of evaluating the effectiveness of the training;
▪ Consider the evaluations in developing the next year's needs analysis; and
▪ Restrict covered persons who do not complete the requirement.
bfinance’s internal program may include videos, computer training, in-person presentations, and other media for conveying training material including a combination of methods. bfinance may not solely rely on teleconferences or other remote training methods.
Annual Needs Analysis
An annual needs analysis is prepared for covered persons. In developing the needs analysis, a combination of the following methods may be used:
▪ Questionnaires to identify areas where employees require additional development;
▪ Feedback from regulators including recent audits, regulatory alerts, and CE feedback will be evaluated; and
▪ Feedback from third party consultants concerning annual compliance reviews.
Needs analysis will be completed by David Vafai (or shortly thereafter) each year for the upcoming calendar year.
Evaluating the Firm Element Program
Participants are asked to complete an evaluation form to evaluate the effectiveness of the firm element continuing education program. These evaluations are considered when designing the next year's continuing education program.
Training Medium and Tracking
The training for the Firm’s personnel will be satisfied through the use of internally developed delivered presentations and other material provided to registered representatives and principals of the Firm. The Firm will allow training substitutions that can count toward credits in completing Firm Element Training. Registered representative and principals should get approval from the CCO for the substitutions. The follow are considered substitutions: industry related conferences, continuing education courses that are required for a professional designation, and taking and passing a FINRA license examination. Whenever possible, seminars, lectures and personal training sessions will be held to supplement the main training program. Regulatory Notices and internal memos may also be distributed to “covered persons” to assist them in their understanding of new and current regulatory requirements.
The CCO will have the responsibility of ensuring that the “covered persons” complete the training assignments within the prescribed time frames, and documenting the successful completion of the program. Evidence of completion may be in the form of sign-in sheets and logs that show who attended and the date of completion.
EMPLOYEE SUPERVISION
1 Standards of Conduct
bfinance mandates that its employees adhere to the standards and rules governing the securities industry as they conduct the Firm’s business. bfinance expects its employees to deal with customers fairly and honestly and to make the customers’ interest their primary concern.
Compliance will distribute the Firm’s compliance policy and procedures to all employees and issue updates as needed.
2 Outside Business Activities (FINRA Rule 3270)
Employees must disclose to bfinance, in writing, any outside business activities prior to engaging in such activity. Each year, employees must complete a compliance questionnaire that details all their current outside business activities. (Appendix B includes a copy of the disclosure form.) Outside business activities may include a wide range of actions, including but not limited to
• being employed by an outside entity;
• acting as an independent contractor to an outside party;
• serving as an officer, director, or partner;
• acting as a finder;
• referring someone and receiving a referral fee; or
• receiving other compensation for services rendered outside the scope of employment with bfinance.
“Other compensation” may include salary, stock options or warrants, referral fees, or the provision of services or products as remuneration. Generally, remuneration consisting of anything of present or future value for services rendered may be considered compensation.
Employees requesting approval to engage in outside business activities must complete the Outside Business Activity Request form and submit it to Compliance prior to engaging in the activity. Compliance will approve or disapprove the outside business activity in writing and notify the employee and the employee’s supervisor. Evidence of requests, approvals, and annual compliance questionnaires will be maintained in each employee’s file. In addition, the CCO or a designee will evaluate and document whether the outside activity is detrimental to the employee’s job function and what restrictions, if any, are necessary.
3 Private Securities Transactions
Employees are prohibited from engaging in any private securities transactions as defined by FINRA. FINRA defines private securities transactions as any securities transaction outside the regular course or scope of an employee’s employment with bfinance (sometimes referred to as “selling away”). This restriction does not apply to outside securities accounts approved by bfinance, transactions with immediate family members where the employee receives no selling compensation, and personal transactions in investment companies and variable annuity securities.
RRs should note that promissory notes often are securities. Even if a promissory note is not deemed a security, the RR must obtain bfinance’s permission before engaging in any outside business activity involving the offer of promissory notes. In the event the Firm’s policy changes, the following procedures will be utilized.
4 Employee and Employee Related Accounts
Employee and Employee Related Accounts Defined
Employee accounts include any accounts where an employee has a personal financial interest, the employee is the named trustee or custodian, or the employee otherwise has control over the account. “Accounts” include securities or commodities accounts at bfinance or other financial institutions, including foreign or domestic broker-dealers, investment advisers, banks, and other financial institutions.
Employee-related accounts include accounts for relatives residing with the employee and accounts for any person who is supported, directly or indirectly, to a material extent by the employee.
Outside Accounts Permitted
Employees may maintain personal securities accounts outside bfinance. However, employees must disclose all outside accounts upon employment by bfinance. All employees must complete an annual compliance questionnaire where they disclose and update all interests in personal securities accounts. Any questions regarding personal accounts should be referred to Compliance. The Firm does not have access to inside information due to the nature of its business lines. In addition, the Firm does not conduct investment banking, market making, corporate finance, proprietary trading, or research.
Review of Transactions
bfinance reviews transactions in employee and employee-related accounts monthly. Employees will be contacted about transactions that may be out of compliance with FINRA rules or the Firm’s policies.
Sharing In Accounts (NTM 03-21)
As a general policy, RRs may not participate in an account that includes customers who are not family members of the employee.
AN RR may be a joint owner in an account with a customer only under the following conditions:
• The employee submits a written request to Compliance accompanied by signed authorization from the customer.
• The employee is a disclosed owner of the account.
• The employee shares in losses and gains only in proportion to the employee’s monetary contribution to the account (not applicable to accounts shared with immediate family members).
• The employee receives written approval from Compliance.
Prohibition On Purchases Of Initial Public Offerings (IPOs) (FINRA Rule 5130)
Employees and their immediate families (parents, spouses, children, in-laws, and siblings) are prohibited from purchasing IPOs.
5 Restrictions on Purchase and Sale of IPOs Equity Securities (FINRA Rule 5130)
IPOs must be conducted as bona fide public offerings and the shares sold distributed fairly to the public. This means sales will not be made to benefit insiders in the securities industry or to other closely related parties who might unfairly benefit at the expense of public customers. This section describes key elements of FINRA Rule 5130 that limit the types of investors that may purchase equity IPO shares.
FINRA Rule 5130 applies to IPOs of equity securities, excluding new issues in the following types of equity securities:
• Restricted securities
• Exempt securities
• Commodity pools
• Rights offerings, exchange offers, or offerings involving a merger or acquisition
• Investment-grade asset-backed securities
• Convertible securities
• Preferred securities
• Investment company securities
• Securities that have a pre-existing market outside the United States (ADRs or share form)
• Business development companies
• Direct participation programs (DPPs)
• Real estate investment trusts (REITs)
• Foreign investment companies (with certain limitations)
The rule should be consulted for specific details. Questions regarding restrictions should be directed to the syndicate supervisor or Compliance.
1 Restricted Persons
Equity IPOs may not be purchased by "restricted persons" as defined by FINRA Rule 2790 Equity IPOs may not be purchased by “restricted persons” as defined by FINRA Rule 2790, including accounts where the restricted person has a beneficial interest. Restricted persons include
• broker-dealers;
• broker-dealer personnel (including officers, directors, general partners, associated persons, or employees);
• immediate family members of the above (“immediate family”);
• employees and immediate family members of employees of an affiliate of the broker-dealer selling the IPO;
• finders and fiduciaries to the managing underwriter for the particular IPO or immediate family member of a finder or fiduciary;
• portfolio managers (any person who has authority to buy or sell securities for a bank, savings and loan institution, insurance firm, investment company, investment adviser, or collective investment account) and their immediate family members; and
• persons who have ownership in a broker-dealer, including
o direct owners (any person listed, or required to be listed, on Schedule A of Form BD) unless ownership is less than ten percent,
o indirect owners (any person listed or required to be listed on Schedule B of Form BD) unless ownership is less than ten percent,
o persons listed or required to be listed on Schedule C of Form BD,
o persons that directly or indirectly own ten percent or more of a public reporting firm listed or required to be listed in Schedule A or persons that directly or indirectly own 25 percent or more of a public reporting firm listed in Schedule B of Form BD (other than reporting companies listed on an exchange or the NASDAQ National Market, or that is a limited business broker-dealer), and
o Immediate family members of the above, with some exclusions in the rule.
Excluded from the definition of “restricted person” are employees or immediate family members of an employee of a “limited business broker-dealer,” which is defined as any broker-dealer whose business is limited solely to the purchase and sale of investment company/variable contract securities and direct participation program securities.
6 Gifts and Business Entertainment
Gifts, gratuities, and entertainment are subject to regulatory limitations. Failure to comply may result in fines or other regulatory actions against the employee and the Firm. It is important for all employees to know and comply with this policy. Questions regarding the gifts and entertainment policy should be referred to Compliance. The key elements of the policy follow:
• Gifts to others are limited to $100 per year per person.
• Multiple gifts to the same person are aggregated, that is, the total of all gifts in any year firm-wide cannot exceed $100 to one person.
• The receipt of gifts is limited.
• An employee must host entertainment to avoid entertainment being considered a “gift” subject to limitations.
• Records of entertainment must include details of who was entertained and the nature of entertainment.
• Gifts to labor union employees require prior Compliance approval.
• Gifts to public officials require prior Compliance approval.
• Your supervisor must be notified of gifts to others.
• Your supervisor must be notified of gifts received (other than personal gifts).
• If the Firm pays for a gift or reimburses the employee for the cost of the gift, the gift is subject to this policy’s requirements.
• Gifts incidental to entertainment (for example, a golf shirt given during a golf outing) are considered gifts subject to reporting to Compliance and the gift limitations.
• Gift requirements (whether the gift is given or received) do not apply to personal gifts to or from immediate family members (parents, children, grandparents, siblings, spouse, in-laws) who also happen to be customers and where the gift is unrelated to the Firm’s business. The policy also does not apply to occasional personal gifts to others (such as a wedding gift or a congratulatory gift for the birth of a child).
Gifts to Others
Gifts relating to bfinance’s business are limited to $100 per year per person.
The limitation does not include usual business entertainment such as dinners or sporting events where the employee hosts the entertainment. Gifts of tickets to sporting events or similar gifts (where the employee does not accompany the recipient) are subject to the limitations on gifts and gratuities. Such gifts may not be so frequent or so expensive as to raise a suggestion of unethical conduct.
Employees of regulators are also subject to limitations regarding gifts given to them by broker-dealers and their employees. Compliance should be contacted for guidance before giving gifts to employees of regulators.
Gifts and gratuities are not permitted when given for the purpose of influencing or rewarding the action of a person in connection with the publication of information that has or is intended to have an effect upon the market price of any security.
Acceptance of Gifts
Employees may not solicit gifts or gratuities from customers or other persons with business dealings with bfinance. Employees are not permitted to accept gifts from outside vendors doing business with bfinance or seeking future business without Compliance’s written approval. This policy does not include customary business lunches or entertainment, promotional items (caps, T-shirts, pens), or gifts of nominal value (less than $100).
Entertainment
Entertainment of customers or prospective customers must be reasonable and not so expensive that it raises a suggestion of unethical conduct. All entertainment and related expenses must be detailed on an expense form with receipts attached for expenses over $25. Expense forms should be submitted to the appropriate supervisor within 30 days of incurring the expenses.
The limitation on gifts and gratuities does not apply to usual business entertainment such as dinners or sporting events where the employee hosts the entertainment, though such expenses should be reasonable. “Entertainment” includes a broad range of activities, such as trips and parties, where an employee hosts someone related to bfinance’s business. Questions regarding the reasonableness of proposed entertainment and related expenses should be referred to Compliance. Compliance will review approved expense forms during the branch examinations.
De Minimis and Promotional Items
The gifts and entertainment policy does not apply to gifts of de minimus value (such as pens, notepads, or modest desk ornaments) or to promotional items of nominal value with the Firm’s logo such as umbrellas, tote bags, or shirts. Promotional items must be valued substantially below the $100 limit to be excluded from the gift policy. Items of higher value (near $100 or more), even if they include the Firm’s logo, are considered “gifts” subject to this policy.
FINRA excludes customary Lucite tombstones, plaques, or other decorative items commemorating a business transaction. This exemption is very limited; other items are considered gifts subject to the policy, even if they commemorate a business transaction.
Supervision
At least quarterly, a Designated Principal will review a spreadsheet of gifts and or entertainment. In addition, a review will be done of the submissions for expense reimbursement to ensure that the Firm’s policy is followed and that any excessive entertainments are identified, documented, and, if needed, remediated.
7 Cash and Non-Cash Compensation Policy (NTM 99-55)
FINRA regulations include restrictions on compensation relating to the sale and distribution of debt, equity, DPP, and REIT securities. RRs may not accept (directly or indirectly) cash or non-cash compensation from outside firms or persons. The only exception is compensation specifically approved by a Designated Principal.
• Cash compensation is defined as any discount, concession, fee, service fee, commission, asset-based sales charge, loan or override, or cash employee benefit received in connection with the sale and distribution of securities.
• Non-cash compensation is defined as any form of compensation received in connection with the sale and distribution of securities, other than cash compensation, which includes, but is not limited to, merchandise, gifts and prizes, travel expenses, meals, and lodging.
• Any compensation as defined in this section and paid directly to an RR requires the approval of a Designated Principal. The following types of non-cash compensation are allowed provided they are not preconditioned on achieving a sales goal:
• Gifts that do not exceed an aggregate value of $100 annually per person
• An occasional meal, ticket to a sporting event or show, or comparable entertainment that is not so frequent or so extensive as to raise any question of propriety
• Payment or reimbursement in connection with training or educational meetings, subject to several conditions
Note that employees must obtain approval from the appropriate Designated Principal before participating in such training or educational meetings. The location of meetings must be appropriate for their purpose—for example, at or near the sponsoring firm’s home office, bfinance’s offices, a facility near such offices, or a regional location for regional meetings. The Designated Principal will determine the appropriateness of meetings and their locations. Only expenses incurred by bfinance or its employees are eligible for payment. Expenses for guests of employees (a spouse, for example) will not be reimbursed.
Non-cash sales incentive programs may be preconditioned on achieving a sales goal provided they are pre-approved in-house incentive programs sponsored by bfinance and meet the following criteria:
• The program must be based on the RR’s total production with respect to all of that type of security sold by bfinance (investment company or DPP, for example).
• The credit received for each security is equally weighted.
• The participants are all bfinance employees.
Other firms may contribute to incentive programs (for example, providing a speaker for a meeting), as long as they do not participate, directly or indirectly, in organizing such programs.
8 Media Contact is Limited to Certain Authorized Employees
Representatives from media such as television, radio, newspapers, and magazines sometimes contact bfinance. Any employee contacted by these representatives must refrain from comment and refer the representative to bfinance’s CEO, Chief Operating Office (“COO”), or CCO.
bfinance expects the individuals authorized to speak to the media to make comments that are in good taste and consistent with the Firm’s opinion or position on the matters discussed.
9 Requests for Information from Outside Sources
Outside parties such as regulators (SEC, FINRA, exchanges, state regulators), attorneys, and governmental agencies (IRS) sometimes contact bfinance to request information about customer accounts, the Firm’s activities, or those of an individual employee.
Information regarding customer accounts, bfinance, and its employees is considered confidential and may be released only to those authorized to receive it. Any requests from outside parties (other than the principal or an authorized person on behalf of an account requesting information on that account) should be immediately referred to Compliance for response. This policy applies to all such requests, whether submitted in writing, by phone, or in person (during regulator visits, for example). Proof of identity should be requested from whoever is asking for the information and Compliance should be notified of all requests immediately.
10 Employee Obligation to Notify bfinance and bfinance’s Obligation to Report (FINRA Rule 4530)
Employees are obligated to notify Compliance if they become associated with any of the following events or circumstances, if not previously reported to bfinance. Some of these occurrences must be reported to regulators.
• An investigation or finding of a violation by a securities regulator, government agency, or a financial business or professional organization such as a bar association
• A temporary or permanent injunction issued by any court that involves securities, commodities, insurance, or banking matters
• A customer complaint (securities or commodities), which include written or oral complaints, civil litigations, or arbitrations
• An arrest, indictment, arraignment, conviction, or plea of guilty or no contest for any felony or misdemeanor (other than misdemeanor traffic offenses)
• A relationship with a financial institution such as a broker-dealer or insurance firm or with an individual associated with that institution that has been suspended or expelled by a regulatory agency, convicted of or pleaded no contest to any felony or misdemeanor, or become subject to a statutory disqualification
• A bankruptcy proceeding
11 Reports of Crimes and Suspected Crimes
All employees must report any known or suspected crimes to Compliance. These include crimes or suspected crimes by individuals whether or not they are associated with bfinance. In particular, any suspicion that bfinance is being used as a conduit for criminal activity such as money laundering or structuring transactions to evade Bank Secrecy Act (“BSA”) requirements must be reported. Compliance is responsible for investigating any such reports and for notifying the proper authorities as necessary.
12 Prohibited Activities
Use of Firm Name
No employee may use bfinance’s name in any manner which could be reasonably misinterpreted to indicate a tie-in between bfinance and any outside activity of the employee.
Providing Tax Advice not Permitted
Employees may not give tax advice to customers since bfinance and its employees are not engaged in the practice of providing tax advice. Customers requiring specific tax guidance should be referred to their personal tax advisers.
Sharing Commissions or Fees with Non-Registered Persons
With few exceptions, regulators generally prohibit the sharing of commissions or compensation with non-registered persons. Any payment or sharing arrangement with a non-registered person must be referred to Compliance for review and approval.
Borrowing From and Lending to Customers (NTM 04-14)
RRs are generally not permitted to borrow from or lend to their own customers. This activity is prohibited for all of bfinance’s RRs.
This restriction does not apply, however, when an employee enters into a loan arrangement with a customer who is
• an immediate family member (defined as parents, grandparents, in-laws, spouses, siblings, children, grandchildren, cousins, aunts or uncles, nieces or nephews, and any other person whom the RR supports, directly or indirectly, to a material extent);
• a financial institution in the business of providing credit, financing, or loans and where the terms of the lending arrangement are those that would also be available to the general public doing business with those institutions;
• another registered employee of bfinance;
• someone (or an entity) who has a personal relationship with the RR and the lending arrangement arises from the personal relationship rather than an RR/customer relationship, or
• someone (or an entity) who has a business relationship outside the RR/customer relationship.
Any proposed loan to or from a RR’s customer (other than a loan with a family member or financial institution as described in the first and second bullets above) requires prior review and approval by Compliance. RRs requesting exceptions must complete the RR/Customer Lending Arrangement Request form or a similar document and submit it to Compliance for approval prior to effecting a loan arrangement.
Personal Funds Deposited In Customer Accounts
In general, employees are not permitted to deposit personal funds or securities in customers' accounts or deposit customers' personal funds or securities in employee accounts. The same prohibitions apply to withdrawals. Exceptions should be reviewed and approved by Compliance.
Prohibition against Guarantees (FINRA Rule 2150)
bfinance and its employees are prohibited from guaranteeing a customer against loss in any securities transaction. Designated Principals are responsible for identifying prohibited guarantees in correspondence or other written communications with public customers. Options or written agreements that establish the future price of a transaction such as repurchase agreements are not included in this prohibition.
Fees and Other Charges
Employees are not permitted to charge fees or assess other charges to customers or customers' accounts unless they are expressly permitted by bfinance.
Customer Signatures
Employees are not permitted to sign documents on behalf of customers, even so requested by a customer. Where customer signatures are required, all documents must be signed directly by the customer.
Rumors
No employee may disseminate, whether in written form or orally, any information that he or she knows to be false or misleading. This includes sensational rumors that might reasonably be expected to affect market conditions. Discussion of unsubstantiated information published in widely circulated public media is not prohibited, providing the source and unsubstantiated nature of the information are also disclosed.
Misrepresentations
Employees may not disseminate any information that falsely states or implies guarantees or approval of securities by the government or other institutions, such as government guarantee of securities which carry no such guarantee. For example, the Securities Investor Protection Corporation (“SIPC”) may not be represented as a guarantor of a customer’s account against losses from transactions.
Bribes
No employee may offer or solicit explicit inducements to or from employees or representatives of other institutions or foreign governmental or political officials to obtain business. Entertainment and gifts in reasonable amounts are not included in this prohibition and are discussed in the section titled Gifts and Gratuities.
The Foreign Corrupt Practices Act (“FCPA”) - (United States Code, Title 15, Chapter 2B)
Commensurate with the FCPA, the Firm prohibits giving “things of value” to a “foreign official” in order to obtain a business benefit from an officer, employee, or other “instrumentality” of a foreign government. For purposes of this policy, “Foreign Official” is defined as
• any officer or employee of a foreign government, agency, or instrumentality of the agency;
• any public international organization;
• any person acting in an official capacity for or on behalf of any such government or department, agency, or instrumentality, or for or on behalf of any such public international organization; or
• a foreign political party or an official or person acting on behalf of a foreign political party.
Companies that are owned, even partly, by a foreign government may be considered an “instrumentality” of that government. In particular, government investments in foreign financial institutions may make the FCPA applicable to those institutions.
The FCPA includes provisions that may permit the giving of gifts and entertainment under certain circumstances. This would include certain gifts and entertainment that are lawful under the written laws and regulations of the recipient’s country, as well as bona fide travel costs for certain legitimate business purposes. However, the availability of these exceptions is limited and is dependent on the relevant facts and circumstances.
The Firm prohibits making payments to third parties or intermediaries while knowing that all or a portion of such money, or thing of value, will be offered, given, or promised, directly or indirectly, to any foreign official. Intermediaries can include, but are not limited to, joint venture partners or other agents such as consultants, independent service providers, and vendors.
Cash payments and political contributions made on behalf of the Firm to foreign officials, either directly or via a third party, are prohibited.
This policy applies to all employees, affiliates, and subsidiaries. The standards of conduct and practices described in it are consistent with the anti-bribery and accounting provisions of the FCPA.
Civil and criminal penalties for violating the FCPA can be severe. Failure to adhere to this policy may result in disciplinary action up to and including termination of employment.
Employees and supervised persons must obtain written preclearance from the CCO prior to giving anything of value that might be subject to the FCPA except food and beverages provided during a legitimate business meeting that are clearly not lavish or excessive. The CCO must evidence his or her approval of “things of value” on the Firm’s Gifts and Entertainment Report. All approved expenditures are logged in the Firm’s Gift and Entertainment Log.
The Firm’s AMLCO or a designee is responsible for monitoring all new accounts for senior foreign political figures (“SFPF”). If the Firm determines that the individual is an SFPF, the Firm will conduct additional due diligence to detect and report transactions that may involve proceeds of foreign corruption, as set forth in the Section SFPF Procedures of the Firm’s AML Program.
The CCO or designee is qualified to conduct due diligence on the selection of any third party to be used in connection with a foreign government, its officials, or anyone meeting this policy’s definition of “Foreign Official.” No agent, representative, or consultant may be retained for such purpose without the written approval of the CCO after the satisfactory completion of appropriate due diligence. Contracts with such third parties will be in writing and specifically bind the individual or entity to comply with the FCPA. Payment to such third parties will be permitted only if it is reasonable in relation to the services performed.
Employees and supervised persons must consult with the CCO if there is any question as to whether gifts or entertainment need to be precleared and/or reported in connection with this policy
On a quarterly basis at minimum, the Firm’s CCO is responsible for reviewing the Firm’s Gift and Entertainment Log for patterns of suspicious gifts or entertainment expenses to “foreign nationals.”
On an annual basis at minimum, the CCO is responsible for ensuring that all contracts with third parties used in the connection with a foreign government contain FCPA provisions, which will be evidenced in the Firm’s “Outsourcing Arrangements” spreadsheet.
The CFO is responsible for establishing appropriate accounting and financial policies, procedures, and other internal controls to fulfill the accounting provisions of the FCPA. The CFO will report any suspicious payments or patterns of suspicious payments to persons located in high-risk jurisdictions to the CCO.
As applicable, the CCO is responsible for administering FCPA training.
The AMLCO will ensure that if approved, payments to a foreign official, political party, party official or candidate in his or its official capacity is only allowed if:
• “payment, gift, offer or promise of anything of value that was made to a foreign official, political party, party official or candidate was lawful under the written laws and regulations of the foreign official’s, political party’s, party official’s or candidate’s country” or
• “payment, gift, offer or promise of anything of value that was made was a reasonable and bona fide expenditure (e.g., travel and lodging expenses) incurred by or on behalf of the foreign official, political party, party official or candidate and was directly related to the promotion, demonstration or explanation of products or services or the execution or performance of a contract with a foreign government or agency” or
• payment is for a “routine governmental actions” such as for a license, permit, visas, work orders, mail, or utility.
The AMLCO will document the reason for all approvals.
Acting Without Registration
No employee may engage in activities that require registration (for example, selling securities, soliciting accounts, trading, etc.) unless registered in the appropriate capacity. Questions regarding the need for registration should be referred to Compliance.
13 Computer Records, Equipment and Software
bfinance considers its computer records, systems, and software to be corporate assets. Employees are responsible for protecting these assets from unauthorized use, destruction, or unauthorized modification. This includes a prohibition against violating copyright laws or licensing agreements applicable to computer software.
Physical equipment (PCs, printers, software, diskettes, etc.) must be placed in a secure location to avoid theft, tampering, unauthorized use, and environmental hazards (water, smoke, magnets, etc.). The use of personal computers for bfinance business is subject to the same guidelines and restrictions as bfinance computers.
When an employee terminates, any disks or other storage medium that includes proprietary information, including customer information, are considered property of bfinance and must be left with bfinance.
14 Use of Titles
In conducting bfinance’s business, employees may not use titles in reference to themselves that are unrelated to their activities with bfinance. The use of any title besides their job title with bfinance requires the prior approval of Compliance. Examples of the types of titles not specifically related to bfinance’s activities include, but are not limited to, C.P.A., J.D., M.B.A., or Attorney at Law.
15 Annual Certification
Employees must, on an annual basis, complete an Annual Certification form. The completion of this form keeps bfinance’s records current regarding items that must be reported to bfinance (for example, outside business activities or outside accounts). Compliance reviews these forms to determine what follow-up action, if any, is required on the items reported. The CCO will ensure that Compliance
• sends the required forms to employees for completion;
• reviews the completed forms;
• takes appropriate action, which may include
o making inquiries regarding reported outside business activities, and/or
o making inquiries regarding reported outside securities accounts;
• confers with the employee and/or his or her supervisor for any other reported information that requires follow-up; and
• checks that annual certifications are retained in the employee file.
16 Employees Acting as Trustees, Executors, or Other Fiduciary Capacities
Employees usually will not act in a fiduciary capacity such as trustee or executor for a customer account unless the account is for a relative. Requests for exceptions to this policy must be submitted in written form to Compliance for approval and should include the reasons for requesting an exception.
CUSTOMER COMPLAINTS
A “complaint” is defined as any written statement by a customer or a person acting on behalf of a customer alleging a grievance involving the activities of a person under the broker-dealer’s control in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.
1 Written Complaints
When a written complaint is received, a copy should be immediately forwarded to the appropriate Designated Principal for follow-up. The Designated Principal will
• send an initial acknowledgment of receipt of the complaint to the customer or the customer’s representative;
• investigate the complaint;
• send a response and resolution to the customer with a copy to the RR and the representative’s supervisor;
• if necessary, amend the RR’s Form U4 (or, in the case of a terminated RR, amend Form U5);
• include the complaint in the quarterly report of complaints to bfinance’s designated SRO;
• for formal civil actions such as lawsuits or arbitrations, refer the matter to bfinance’s legal counsel for response.
2 Oral Complaints
Oral complaints should be reported immediately to the appropriate Designated Principal for sales practice issues or to Operations for operational issues. Examples of sales practice issues include complaints regarding losses, improper trades, or other complaints involving the quality of investments or wrongdoing by an RR or bfinance. Examples of operational issues include late dividend checks, errors on monthly statements, and so on. Registered representatives should not make independent decisions regarding whether to report complaints. As noted, all oral complaints must be reported to a Designated Principal or Operations.
3 Records of Complaints
Designated Principals will maintain a central record of all customer complaints that include the following information:
• Complainant name and address
• Account number
• Date of receipt
• Employee(s) identified
• Nature of complaint
• Current disposition
4 Office Records of Complaints
Each registered branch office where bfinance regularly conducts business (handles funds or securities, solicits or accepts customer orders) must maintain a separate file of all written customer complaints.
5 Notice to Customers
bfinance must provide each customer with a notification containing the address and telephone number of the department to which complaints may be directed. This information may be conveyed to clients in the new account welcome package or in an annual disclosure.
6 Disclosure Events
Securities Law, Rule, or Regulation Violation - These events involve instances where a firm or a person associated with a firm has violated any provision of any securities law or regulation, or rule or standard of conduct of any governmental agency, SRO, or business or professional organization, or engaged in conduct that is inconsistent with just and equitable principles of trade.
Customer Complaint - These events involve instances where a firm or a person associated with a firm is the subject of any written customer complaint involving allegations of theft, misappropriation of funds or securities, or forgery.
Regulatory or Self-regulatory Proceeding - These events involves instances where a firm or person associated with a firm is named as the defendant or respondent in any proceeding brought by a regulatory or self-regulatory body alleging the violation of any provision of the Exchange Act, or of any federal or state securities, insurance, or commodities statutes, or of any rule governing instruments of securities, insurance, or commodities regulatory or SROs.
Regulatory or Self Regulatory Membership - These events involve instances where a firm or person associated with a firm is denied registration or is expelled, enjoined, directed to cease and desist, suspended, or otherwise disciplined by any securities, insurance, or commodities industry regulatory or SRO or is denied membership in any such SRO, or is barred from becoming associated with any member of any such SRO.
Criminal Offense - These events involve instances where a firm or person associated with a firm is arrested, arraigned, indicted, or convicted of, or pleads no contest to, any felony or misdemeanors involving the purchase or sale of any security, taking of a false oath, the making of a false report, bribery, perjury, burglary, larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, misappropriation of funds or securities; of a conspiracy to commit any of these offenses; or of substantially equivalent activity in a domestic, military, or foreign court.
Association with Investment Firm - These events involve instances where a firm or person associated with a firm is a director, controlling stockholder, partner, officer, or sole proprietor of, or an associated person with, a broker, dealer, investment firm, investment adviser, underwriter, or insurance firm that is suspended, expelled, or had its registration denied or revoked by any agency, jurisdiction, or organization, or is associated in such a capacity with a bank, trust firm, or other financial institution that was convicted of, or pleaded no contest to, any felony or misdemeanor.
Civil Litigation or Arbitration - These events involve instances where a firm or person associated with a firm is a defendant or respondent in any securities or commodities-related civil litigation or arbitration that has been disposed of by judgment, award, or settlement for an amount exceeding $15,000. Reporting the event to FINRA, however, will be required only when the subject judgment award or settlement is for an amount exceeding $25,000.
Damages Claim - These events involve instances where a firm or person associated with a firm is the subject of any claim for damages by a customer, broker, or dealer that is settled for an amount exceeding $15,000. However, when the claim for damages is against a member, then the reporting to FINRA will be required only when such a claim is settled for an amount exceeding $25,000.
Statutory Disqualification - These events involve instances where a firm or person associated with a firm is, or learns that they are, associated in any business or financial activity with any person who is subject to a “statutory disqualification” as that term is defined in the Exchange Act, and the disclosure will include, with required reports, the name of the person subject to the statutory disqualification and details concerning the disqualification.
Disciplinary Action - These events involves instances where a firm or person associated with a firm is the subject of any disciplinary action taken by the member against any person associated with the member involving suspension, termination, the withholding of commissions or imposition of fines in excess of $2,500, or otherwise disciplined in any manner that would have significant limitations on the individual’s activities on a temporary or permanent basis.
7 Other Required Filings
The Company must promptly file with FINRA copies of the following documents, as applicable:
• Any criminal complaints filed against bfinance or plea agreements entered into by the Company that are covered by Rule 4530
• Any securities or commodities-related private civil complaints filed against bfinance
• Any arbitration claim against the Company
• Any criminal complaint or plea agreement, private civil complaint, or arbitration claim against an associated person that is reportable under question 14 on Form U4, irrespective of any dollar threshold requirements that question imposes for notification
Arbitration claims originally filed in the FINRA Dispute Resolution forum and documents that have already been requested by FINRA’s Registration and Disclosure staff are exempt from the above requirements, provided, in the latter case, that such documents are produced to Registration and Disclosure within 30 days of the request.
8 Complaint Reporting FINRA Rule 4530
The complaint-reporting requirement under NASD Rule 3070 was converted to FINRA Rule 4530, effective July 1, 2011. One of the major additions made in Rule 4530 is the requirement for firms to report “internal conclusions” of violations within 30 calendar days of making such determinations. Instances of material noncompliance with securities, insurance, commodities, financial, or investment regulations that have a “potential widespread impact to the firm, its customers or the markets” would be reportable. This change will require firms to determine if such material impacts have occurred when documenting their violation review process.
Internal Conclusions
The CCO will document instances of non-compliance with the Firm’s written supervisory procedures. When such events occur, the CCO will evaluate whether the event or multiple events rise to the reporting level of a violation as prescribed by Rule 4530.01. The CCO will consider the following to determine if the event(s) of non-compliance meet the reporting criteria of Rule 4530.01:
• The violative conduct was widespread.
• The violation significantly impacted a customer or the markets.
• The violation adversely affected multiple customers.
• The violation occurred on multiple occasions.
• The violation impacted the Firm.
• The violation was related to a regulation that the Firm rates moderate or high.
• The conduct resulted in a significant monetary loss to a customer, Firm or markets.
If the CCO determines that the violation reaches a reporting level, the President of the Firm will be notified. During this notification, remedial action will be discussed which may include further discusses with counsel, operational areas and the business units.
The documentation will include the rationales of why the event(s) of non-compliance should not be reported. The documentation will be maintained in a file by the CCO. The CCO will also be responsible for reporting the internal conclusion.
9 Procedure for Investigation
Upon receipt of any correspondence from a customer, agency, state, or federal jurisdiction, or a firm, in which a complaint or allegation is made, the appropriate Designated Principal must receive the complaint within 24 hours. Any delays in the submission of the complaint should be disclosed to the Designated Principal immediately.
The minimum required steps for handling a complaint investigation properly are as follows:
1. Note receipt of the letter from customer or agency.
2. Respond immediately by letter to the customer (within three days).
3. Review records and documentation related to the customer file, including trading, communications, and account records.
4. Review the matter with the RR.
5. Have the RR reduce his or her position in writing.
6. Prepare a summary memo of the complaint, including a recommended resolution and whether disciplinary action should be taken against the RR.
7. Prepare a close-out and final disposition letter to the customer.
8. Ensure a contact status sheet is maintained in each complaint file.
9. File the complaint at the end of the quarter with FINRA (a copy of the submission confirmation will be maintained on file and initialed by the processor as being filed).
10. Forward a copy of the complaint file to the representative’s branch office, if applicable.
11. As required, update the RR’s Form U4 to reflect the written complaint.
The Designated Principal will investigate each customer complaint and also will determine whether the event should be reported to FINRA. In addition, complaint information should be included in the Needs Analysis of the CE Firm Element.
10 FINRA’s BrokerCheck Complaint Disclosure (Regulatory Notice 10-34)
FINRA’s BrokerCheck will make available historical customer complaints that became non-reportable after August 16, 1999. The CCO will amend archived historical complaints if necessary. Individuals and the Firm may dispute the accuracy of information due to incorrect information at filing or due to events subsequent to the filing. If the Company wishes to dispute a complaint, the CCO will complete and then submit the BrokerCheck Dispute Form.
COMMUNICATIONS WITH THE PUBLIC
1 Advertising and Sales Literature (NTM 03-38)
Advertising and Sales Literature Defined
Advertising generally includes material published or designed for use in newspapers, magazines or other periodicals, radio, television, telephone or tape recordings, telephone directory advertising (other than routine listings), computer bulletin boards or other electronic messages, videotape displays, signs or billboards, movies, or other material published in public media.
Sales literature generally includes circulars, research reports, form letters sent to more than one person, market letters, newsletters, seminar texts and reprints, or other material originated by bfinance or its employees and to be reproduced and provided to multiple customers or prospective customers. Sales literature also includes telemarketing scripts. The terms "advertising" and "sales literature" are interchangeable in this chapter.
General Guidelines
All advertising and sales literature must meet the general standards of good taste and accuracy and should fairly represent the products or services included in the advertisement or sales literature. Promissory, exaggerated, or false statements as well as language inferring guarantees are not permitted. Projections and predictions are not permitted. Past performance is not a guarantee of future performance and should be identified as such if included in advertising or sales literature. Portraying the performance of past recommendations or actual transactions must include an acceptable universe over a reasonable period of time.
In addition, if a recommendation is included in advertising or sales literature, the following disclosures must be included (if applicable):
• bfinance and/or its officers have a financial interest in any of the issuer’s securities and if so the nature of that interest (options, warrants, short/long positions, etc.) unless the interest is nominal
• Whether bfinance was a manager or co-manager of the issuer’s securities within the past 12 months
Required Information
All advertisements and sales literature will include the Company name. “Blind” ads are not permitted except for recruiting personnel. Exceptions to the use of the Firm’s name must comply with rules that deal with generic, derivative, and other potential variations on the Firm’s name.
Sales literature is also required to include the name of the person or firm preparing the material, if other than bfinance, and the date when it is first published, circulated, or distributed. If the information in the material is not current, this fact should be stated.
Inclusion of other names, such as an RR’s separate corporation, in advertising and sales literature regarding bfinance’s broker-dealer services, is not permitted except with prior approval from Compliance. Compliance’s review of advertising will consider such requests on a case-by-case basis.
Approval Prior to Publication
All advertising or sales literature must be submitted to Compliance for approval prior to publication.
Disclosure of Prices For Recommended Corporate Securities
In communications where corporate securities are recommended, the price of the security at the time of the recommendation must be disclosed. While this requirement does not extend to other securities, inclusion of the price would be required if price information is deemed "material" and necessary to prevent the communication from being misleading.
Use of Outside Advertising or Sales Literature
Advertising or sales literature provided by outside entities and intended for re-publication with the name of the Company or an employee requires the prior approval of Compliance. A copy of the approved item including the approval and date of approval will be included in bfinance’s central advertising file.
SIPC Membership (Securities Investor Protection Act of 1970, U.S. Code Title 15, Chapter 2B-1)
Advertising must include a notation that bfinance is a member of SIPC, e.g., "Member, SIPC." If a statement is included in advertising to explain what SIPC is, one of the following two standardized phrases may be included:
• Member of SIPC, which protects securities customers of its members up to $500,000 (including $100,000 for claims for cash). Explanatory brochure available upon request or at .
• Member of SIPC. Securities in your account protected up to $500,000. For details, please see .
The words "Member, SIPC" may be omitted if the official explanatory statement is used in conjunction with the official SIPC symbol.
"Advertising" is defined under SIPC rules as any promotional material used in or on any newspaper, magazine, or other periodical, radio, television, telephone or tape recording, videotape display, motion picture, slide presentation, telephone directory, sign or billboard, electronic or other public media.
Telemarketing Scripts
bfinance does not permit cold calling or the use of telemarketing scripts. The section below titled “Cold Callers” includes further information regarding the use of such scripts and callers.
Special Filing or Approval Requirements
There are special filing or approval requirements for certain products and broker-dealers, as outlined below.
• Filings must be accompanied by FINRA's Advertising and Sales Literature Filing Cover Sheet.
• All advertising or sales literature to be submitted to FINRA must be approved by the appropriate Designated Principal prior to submission to FINRA.
• The actual or expected date of first use or publication must be included with the FINRA filing.
FINRA rules should be consulted for specific requirements or exclusions from the requirements.
|Type to be filed |When to file with FINRA |
|Members who have never filed |Ten days prior to first use for one year dating from the first |
| |submission. |
|Public direct participation program (DPP) advertising and sales |Within ten days of first use |
|literature | |
|TV and video advertisements |If a draft version is filed with FINRA, the final filmed version must|
| |be filed within ten business days of first use or broadcast |
|Press releases |No filing required if made available only to members of the media |
It is not necessary to re-file with FINRA any advertising or sales literature that has previously been filed and that has not been changed. There are other requirements regarding advertising of certain products, including mutual funds. Refer to the specific section for further information.
Institutional Sales Material
Sales material prepared for institutional investors is not subject to the same requirements as material prepared for retail investors. This does not include material that bfinance has reason to believe will be distributed to anyone who is not an institutional investor. For example, if sales material is provided to an institution for distribution to employees participating in a 401K plan, the sales material would be treated as distributed to retail investors. “Institutional investors” include
• bank, savings and loan associations, insurance firms, or registered investment firms;
• registered investment advisers;
• entities (natural person, corporation partnership, trust, or other) with total assets of at least $50 million;
• Government entities;
• employee benefit plans under Internal Revenue Code Section 403(b) or 457 with at least 100 participants;
• qualified plans under Section 3(a)(12)(C) of the Exchange Act with at least 100 participants;
• FINRA member or someone registered with an FINRA member firm; or
• someone acting solely on behalf of an institutional investor
Institutional sales material is subject to bfinance’s correspondence review procedures and does not require pre-use approval and filing with FINRA.
Records of Advertising and Sales Literature
• Compliance maintains a central file of all advertising and sales literature approved by bfinance. The file will include, for each item reviewed the approval of the appropriate Designated Principal;
• any revisions, if necessary;
• a record of filing with an SRO and the date of filing (if required);
• approval received from the SRO (if required);
• when the item was used (if undated on the item); and
• in what media the item appeared (if applicable).
Advertisements Involving Non-Branch Locations
FINRA rules specify that any non-branch location referenced in an advertisement or sales literature by its local telephone number and/or local post office box is permitted if the advertisement does not include the street address of the non-branch location and includes the address and telephone number of the branch office or OSJ directly supervising the non-branch location.
bfinance’s central office address and telephone number may be substituted for the supervisory branch or OSJ only with the approval of Compliance.
2 Outgoing Correspondence (NTM 98-11)
Correspondence Defined
Correspondence includes any written or electronic communication prepared for delivery to a single current or prospective customer and form letters and group emails sent to existing retail customers and to fewer than 25 prospective retail customers within any 30-day calendar period ("group correspondence"). "Existing retail customer" includes any person (except an institutional investor) for whom bfinance or a clearing broker used by bfinance carries an account.
Correspondence also includes portfolio summaries and other types of information originated by the RR and provided to customers or prospective customers. Interactive electronic conversations (direct links or "chat rooms") generally are not regarded as correspondence. Advertising, sales literature, and market letters are not included in this definition of correspondence and are subject to separate requirements described in other sections of this chapter.
Prohibition against Sending Correspondence from Personal Computers and Other Non-Firm Facilities
Outgoing public correspondence may only be sent or transmitted through bfinance-sponsored facilities or systems. Written correspondence must be sent through channels that permit supervisor review. Correspondence may not be sent through a RR’s personal computer or other third-party system or facility that circumvents Company review.
Review and Approval - Outgoing Written Correspondence
Outgoing customer correspondence is subject to review and approval by the designated branch/department supervisor.
Independently Prepared Reprints
Articles and other reprints that accompany correspondence are subject to outgoing reviews. Copies of such articles and reprints should be submitted with the correspondence for review and approval. If bfinance provided an article or reprint to RRs, a copy of it need not be submitted for review with the letter or other correspondence that references it.
Articles and reprints by an independent publisher that are not materially altered are not subject to FINRA filing requirements and most content standards. This exception does not apply, however, to reprints published by an affiliate of bfinance.
Distribution of copyrighted material is subject to the copyright holder’s approval. bfinance will obtain approval for independent reprints it distributes to RRs for sending to customers. For other reprints, Compliance should be consulted for assistance in obtaining the publisher's approval.
Content Guidelines
Items to consider when preparing and reviewing outgoing correspondence (and other forms of written or electronic communications) include:
• Truthfulness and good taste are required.
• Exaggerated, unwarranted, or misleading statements or claims are prohibited.
• Past performance may not be used to promise, guarantee, or imply future profits or income from securities.
• Projections and predictions are not permitted.
• Comparisons of personnel, facilities, or charges with those of other broker-dealers should not be made unless supported by facts; the names of any comparison firms must be excluded.
• Correspondence or other written communications regarding securities subject to pending distributions (underwritings) are generally not permitted.
• Correspondence regarding securities sold by prospectus (such as mutual funds or limited partnerships) must be approved by Compliance prior to sending (except for pre-approved correspondence where no changes have been made).
• Only bfinance-approved hedge clauses may be used.
• Tax advice must not be provided; the customer should be referred to his or her tax adviser for such issues.
• Copyrighted material should not be distributed without permission.
• Profit and loss or other portfolio analyses should include a disclaimer that customers should rely on customer statements provided by bfinance and that any analysis or calculation is provided for information purposes only.
• The use of Company letterhead is restricted to Firm-related matters.
Form Letters and Group Emails
Form letters and group emails to be sent to 25 or more existing retail customers or prospective retail customers within a 30-day period must be approved by Compliance prior to sending. These communications may also be subject to FINRA rules regarding pre-use approval and filing with FINRA, depending on content. “Existing retail customer” includes any person (except for institutional investors) for whom bfinance has an account.
Pre-approved form letters and group emails used without revision (other than customer name and address) may be sent to customers or prospective customers without additional approval. Records of the recipients of form letters and group emails must be retained by bfinance.
Letters and Notes
Copies of letters, notes, and similar correspondence must be provided to the appropriate Designated Principal on the day they are sent.
Facsimiles
Facsimile transmission of customer correspondence is subject to review and approval procedures. All facsimile transmissions must be provided in hard copy to the appropriate Designated Principal on the day sent.
3 Incoming Correspondence
Review of Incoming Correspondence
All incoming written correspondence will be opened and reviewed by the appropriate Designated Principal or a designee. The material being reviewed includes letters, facsimiles, courier deliveries, and other forms of written communication. The following guidelines for review apply:
• Correspondence identified as “Confidential” will be opened and reviewed.
• Obvious non-customer correspondence such as bank statements or advertising will not be opened and will be forwarded directly to the addressee.
• Audit letters (requests from customers’ auditors for verification of account positions) will be forwarded directly to Operations for response.
• Complaints will be immediately forwarded to the RR’s supervisor and to Compliance.
• Checks or securities will be immediately forwarded to the appropriate Operations personnel and the RR notified of receipt.
• Original customer correspondence will be retained for bfinance’s files; the addressee will receive a copy.
• The original customer correspondence will also be forwarded to the appropriate Designated Principal for review, initialing, and filing.
Personal Mail
Employees should direct all personal mail to their home address. Any personal mail received by bfinance is subject to incoming correspondence and electronic mail review policies.
4 Legends And Footnotes
When legends or footnotes are included in public communications, they cannot be placed or sized in a way that limits the investor’s ability to read or understand the information. Small fonts may inhibit reading the information or may inappropriately diminish its importance. Bold claims balanced by a footnote may also mislead the reader.
5 Internal-Use Only Information
Information marked “Internal Use Only” may not be sent or otherwise provided to individuals outside bfinance.
6 Investment Analysis Tools (NTM 04-86)
If bfinance provides investment analysis tools to investors via the Internet or in other forms,
• investors must be provided with the required disclosures, and
• Material about any new investment tools must be filed with FINRA within ten days of first use.
The post-use filing requirement does not apply to investment analysis tools meeting the criteria of “institutional sales material” provided exclusively to “institutional investors”.
7 Recorded Phone Solicitations
bfinance does not permit the use of recorded telephone solicitations.
8 Cold Calling Restrictions
bfinance “does not” permit cold calling or the use of telemarketing scripts. The calling restriction procedures are maintained for information purposes in the event bfinance policy changes.
Introduction
bfinance and its employees are subject to restrictions that govern telephone solicitations as well as unsolicited facsimile advertisements to residences. "Telephone solicitation" is defined as a telephone call initiated for the purposes of encouraging the purchase of or investment in property, goods, or services. The definition exempts calls made by tax-exempt nonprofit organizations.
bfinance and its employees will comply with the requirements and restrictions. Designated Principals should ensure RRs are aware of this policy and its restrictions.
Requirements and Restrictions
bfinance’s general requirements for telephone solicitations are described below:
• The caller must provide the called party, at the beginning or in the introductory portion of the script, with his or her name, the name of the person or entity on whose behalf the call is being made, and a telephone number or address at which the caller may be contacted. The caller must also disclose that the call’s purpose is to solicit the purchase of securities or related services.
• Telephone solicitations to residences may not be made before 8 a.m. or after 9 p.m. in the time zone of the called party’s location.
• A “Do Not Call” list must be established that includes the names of individuals who have specifically requested to be excluded from telephone solicitations. Do Not Call lists must be retained for ten years.
• A facsimile transmission must include, in a margin at the top or bottom of each transmitted page or on the first page of the transmission, the date and time it was sent, and the identity of the business, other entity, or individual sending the message along with the telephone number of the sending machine or the sender.
• Prerecorded calls to residences are prohibited.
• The sender’s telephone number may not be a 900 number or other number where the called party will incur a charge for notifying the sender of his or her desire to not be called. Consumers may not be charged to protect their privacy.
These restrictions do not apply to calls to customers for whom bfinance carries accounts and where the account has had some activity in the last 12 months (for example, trading or credit of interest earned). These restrictions also do not apply to calls to other broker-dealers.
Prohibited Activities
The following actions are prohibited when calling customers or prospective customers:
• Threats, intimidation, and/or the use of profane or obscene language
• Repeated calls to a person with intent to annoy, abuse, or harass the called party
• Use of an alias
Do Not Call Lists
Phone solicitations may not be made to phone numbers that are included on federal, state, or bfinance’ Do Not Call lists. Fines may be substantial for each call that violates a Do Not Call restriction, so it is important to comply with this requirement.
It is permissible to contact someone with whom bfinance has an “established business relationship” (described below), someone who has given express written permission to call outside the applicable time, or someone who is a broker or dealer.
If someone has asked to be included on bfinance’ Do Not Call list, that person may not be called regardless of whether they are a current customer or have an established business relationship. Individual states may impose stricter requirements limiting contact with persons on their Do Not Call lists.
The Do Not Call lists are available for RRs to reference prior to making solicitation calls.
Established Business Relationship
Calls to the following are not subject to Do Not Call restrictions:
• Persons that have made a financial transaction or had a security position, a money balance, or account activity with bfinance within the 18 months immediately preceding a call
• Persons for whom bfinance has been the “broker-dealer of record” (identified on the customer’s account application for accounts held directly at a mutual fund or variable insurance product issuer) within the 18 months immediately preceding the date of the call
• Persons who contacted bfinance to inquire about an bfinance product or service within the three months immediately preceding the call
National Do-Not-Call Registry
The Federal Trade Commission (“FTC”) and Federal Communications Commission (“FCC”) established requirements for sellers and telemarketers to participate in a National Do-Not-Call Registry of phone numbers that do not accept phone solicitations. bfinance and its employees must avoid solicitation calls to any number on the list unless the person has an "established business relationship" with bfinance. The list used must be no older than 31 days prior to the date any call is made.
In general, national do-not-call requirements apply to residential phone numbers. In addition, the FCC includes wireless subscribers in the national registry, presuming these are residential subscribers.
State Restrictions
Certain states have enacted restrictions on telephone solicitations to residences. Florida, for example, has a restrictive policy whereby individuals may ask to be included on a state-wide Do Not Call list. It is the telephone solicitor’s obligation to be aware of any individuals who are included on that list. Employees should contact Compliance if they have questions regarding state restrictions.
Internal Do Not Call List
Employees are responsible for reporting to Compliance the names of individuals who do not wish to be called. Compliance maintains a Do Not Call List that is periodically distributed to employees with an explanation of bfinance’s telemarketing policy. It is the RR's responsibility to ensure outgoing calls are not made to anyone appearing on bfinance’s Do Not Call List.
9 Cold Callers (NTM 95-54)
As noted above, bfinance “does not” permit cold calling or the use of telemarketing scripts. The following procedures are for informational purposes in the event bfinance’s policy changes.
Cold Caller Requirements
All cold callers will be employees of bfinance and will be subject to the usual background investigations for all new employees. Cold callers are supervised by the Designated Principals of their respective departments.
Cold callers will be provided with a copy of bfinance’s policy regarding cold callers and the Calling Restrictions policy as well as bfinance’s Do Not Call list. Cold callers will be asked to acknowledge, in writing, receipt of the policies and the list.
Permissible Cold Caller Activities
Unregistered cold callers are restricted to the following:
• Inviting prospects to bfinance sponsored events
• Asking whether a prospect would like to speak to an RR
• Asking whether a prospect would like to receive information about investments
When making a call, the cold caller must identify himself or herself as well as bfinance and the purpose of the call.
Prior to making calls, the caller must check bfinance’s Do Not Call List.
Prohibited Cold Caller Activities
• Unregistered individuals may NOT solicit prospects to open accounts,
• discuss general or specific products or services,
• pre-qualify prospects by inquiring about financial status or investment objectives,
• use an alias when identifying themselves, or
• contact persons on bfinance’s Do Not Call list.
Telemarketing Restrictions
Cold caller activities are subject to the Telephone Consumer Protection Act of 1991 issued by the Federal Communications Commission, as outlined in the “Cold Calling Restrictions” section above.
Scripts
Cold callers will be restricted to using bfinance-approved scripts when making calls. Scripts are approved by the appropriate Designated Principal prior to use.
10 Public Speaking
General Guidelines
The general concepts of truthfulness, good taste, and a fair presentation apply to employees engaging in public speaking. Public speaking includes participation in a seminar, forum (including an interactive electronic forum), radio or television interview, or other public appearance or public speaking activity.
Approval
Prior to engaging in public speaking, the RR should prepare an outline for approval by the appropriate Designated Principal. The outline will be retained in the branch, department, or Firm’s public speaking file and should include the date and location of the event, the name of sponsoring group, and the speaker’s name.
Compliance will:
• review the outlines of information to be presented and revise as needed,
• review the charts and written materials to be presented, and
• ensure that presentations involving securities being offered by prospectus include the provision of such prospectuses to attendees.
For product-specific presentations, employees should request a review by the product manager, if necessary. For mutual fund presentations, the materials provided by wholesalers require Compliance approval.
Option presentations require the review and approval of the Registered Options and Securities Futures Principal.
With regard to public speaking engagements, the CCO will
• maintain the approved outline and samples of visual aids and written materials in a “Public Speaking” file,
• initial and date all approved materials,
• obtain and maintain in the Public Speaking file a list of attendees who received prospectuses (if applicable), and
• ensure that Compliance maintains records of approved wholesaler materials.
Radio, TV, and Other Extemporaneous Presentations
The standards of communications with the public apply to all public appearances whether scripted or not. The following should be considered when participating in radio, TV, or other non-scripted public appearances. Most employees are restricted from such contact except with the specific approval of Compliance.
• Specific recommendations of securities must be avoided unless approved by Compliance or the speaker is authorized under bfinance’s "Media Contact" policy. If a recommendation is made, the speaker is required to disclose material information. The current price and any special risks associated with the security also must be disclosed.
• The Firm's name must be clearly disclosed in conjunction with any securities or services offered.
• The speaker cannot assume a specific level of audience knowledge, experience or suitability. High risk securities may not be appropriate for discussion in a broadcast format available to any listener.
• Media presentations should be clear and understandable. Speaker should avoid overly complex messages and technical terminology that may not be understood by the general audience.
• Speakers should include products only where they are licensed to sell the product.
For RRs who are approved to engage in radio, TV, or other extemporaneous public speaking, Compliance is responsible for periodically reviewing the presentations, either on tape or concurrent with broadcast, contacting the representative if unacceptable material is included, and making a record of the review and any action taken.
Securities Sold by Prospectus
When a presentation includes a discussion of securities sold by prospectus (such as mutual funds or new issues.), participants should receive a copy of the prospectus. A list of participants should be prepared and an indication included that prospectuses were provided. This record will be included in the branch or Firm public speaking file.
11 Electronic Communications (NTM 01-23 and 98-11)
Electronic Mail
Commercial Email Procedures (CAN-SPAM Act of 2003)
Bfinance does not permit the sending of commercial email. The following procedures are for informational purposes in the event bfinance’s policy changes.
Emails that are "commercial electronic mail" will comply with the requirements and restrictions under federal law governing such communications. Commercial electronic mail includes, under federal law, any electronic mail message primarily for the purpose of sending a commercial advertisement or promotion of a commercial product or service. It does not include electronic mail relating to transactions or where there is a relationship between the sender and the recipient.
Commercial electronic mail sent by bfinance will comply with the following requirements.
• All emails will include clear identification of the Firm, its address and the sender's email address.
• Emails will be sent using bfinance’s computers or other computers specifically authorized for transmission of bfinance emails.
• Recipients will be given the opportunity to "opt-out" from receiving future commercial electronic mail.
• bfinance will not use "address harvesting" or "dictionary attacks" to obtain email addresses from the Internet.
Review and Approval
All outgoing email correspondence must be transmitter through an email archiving system. The Reviewer will refer to the Designated Principal any customer correspondence requiring approval. Inappropriate email will also be referred to the branch/department supervisor.
Advertising, sales literature, research, market letters, communications with the press, and other communications for general distribution or release to the media require pre-use review and approval in accordance with policies governing these types of communication. Refer to other sections of this chapter regarding requirements for these communications.
Information Required On Outgoing Electronic Mail
The following information must be included on all outgoing email:
• The Firm's name and address
• Name of sender
• Department/branch location
• Phone number
• Email address of sender
In addition, bfinance’s standard disclosures should appear on outgoing emails.
Designated Reviewer
The branch/department supervisor may designate a reviewer of electronic mail.
The Reviewer's responsibilities include the following:
• The Reviewer will review randomly 10% of all incoming and outgoing communications and 100% of quarantined incoming and outgoing communication at least quarterly.
• Inappropriate communications are to be referred to the branch/department supervisor's attention. This includes internal electronic communications received or sent. Examples of inappropriate communications include material that is harassing; illegal; embarrassing; sexually explicit; obscene; intimidating; or defamatory.
Branch/Department Supervisor's Responsibilities
The Branch/department supervisor is responsible for reviewing outgoing and incoming electronic communications referred by the Reviewer. The Branch/department supervisor's responsibilities include the following:
• Review outgoing customer correspondence in accordance with procedures for review of other outgoing correspondence.
• Refer copies of inappropriate communications to Compliance.
• For inappropriate communications, contact the sender immediately to advise them sending such material is against bfinance policy. If the sender is not under the supervision of the branch/department supervisor, refer the matter to Compliance for contact with the sender.
Monitoring Procedures
Electronic mail supervisory procedures will be monitored by Compliance as follows:
• Inappropriate mail referred by branches or departments will be reviewed and disciplinary action, if appropriate, will be taken and recorded in the employee's file.
• Compliance will review "filtered" electronic communications identified by software used by bfinance for that purpose.
• Outgoing business correspondence that appears questionable will be referred to the Branch/department supervisor for follow up with the sender.
• Customer complaints will be handled in accordance with bfinance’s complaint procedures.
• Action regarding inappropriate communications may include referring the matter to the branch/department supervisor; direct contact with the employee who sent or received the communication; and disciplinary action, as appropriate.
• Branch/department procedures will be audited as part of bfinance’s periodic branch and department reviews.
• Compliance may, at its discretion, conduct an electronic audit of an employee's computer to determine the types of computer files retained.
Email Policy Violations
When a message is discovered that violates bfinance’s policy, Compliance will take the following action:
• Review the employee's file to determine if there have been other violations and whether the employee has responded appropriately.
• Send notification to the employee, with a copy to the employee's supervisor, of the violation including sender's identification; receiver's identification; date/time of message; subject line; and size/name of attachment, if applicable. Any prior violations will also be noted for the employee's and supervisor's information.
• At Compliance's discretion, send a copy to the supervisor's supervisor if a repeat problem and it does not appear an appropriate response was received for prior violation(s).
• Determine disciplinary action, if any.
• Retain a record of notification to the employee and any action taken in the employee's registration file (if registered) or personnel file (if not registered).
• Where there is a history of violations, Compliance may conduct an electronic audit of the individual's computer files to determine content of information being retained.
Record Retention
All incoming and outgoing electronic communications will be archived and retained consistent with requirements for other incoming and outgoing correspondence. Actions taken by Compliance regarding inappropriate communications will be recorded in memo or other written format and retained in the employee's registration file (if registered) or personnel file (if not registered).
Education and Training
bfinance uses a number of methods to educate its employees regarding bfinance’s policies regarding electronic communications.
• Before employees are permitted to use bfinance sponsored email, employees are required to read and agree to the policy regarding electronic communications. The policy is distributed to all new employees who are required to acknowledge receipt in bfinance’s Annual Compliance Questionnaire.
• Current employees acknowledge their understanding and agreement with the policy in bfinance’s annual certification.
• The Firm Element continuing education program and/or annual compliance meeting for registered employees will periodically include training regarding bfinance’s the policy.
• Periodically bfinance may distribute reminders to employees regarding the policy.
Special Reviews
As part of bfinance’s supervision of RRs, Compliance may impose different standards of review that may include review of all incoming and outgoing correspondence regardless of form, pre-approval, or other special reviews.
Bulletin Boards, Web Sites and Other Electronic Communication Systems
The use of computer bulletin boards, web sites, or other electronic communication systems on the Internet for the purposes of advertising or soliciting business is subject to the same requirements for approval as other forms of written communications.
bfinance Web Site
If the Firm elects to establish a website the following procedures will apply. Any information to be included on the web site requires the prior approval of Compliance.
RR Web Sites
RRs are not permitted to establish personal web sites to solicit or conduct business on behalf of bfinance. Participation in other web sites to conduct bfinance’s business (other than approved participation in bfinance’s web site) through linking or other means of contacting or identifying the RR is prohibited except with the prior written approval from Compliance.
12 Identification Of Sources
When using communications not prepared under the direct supervision of bfinance, it is necessary to identify, on the communication, the person or entity that prepared the material. This includes research reports obtained from outside sources.
13 Electronic Communications Policy
Introduction
This policy governs the use of electronic communications by personnel of bfinance. This policy also extends to off-hours usage of electronic communications systems.
Summary of Policy
The following summarizes key points of this policy. It is important that the policy be read in its entirety.
• All personnel of bfinance are subject to this policy.
• bfinance’s electronic communications systems are to be used for business purposes.
• Electronic communications should not be considered private.
• Electronic communications are subject to monitoring and audit by bfinance.
• Emails are subject to federal law restricting the sending of unsolicited electronic mail.
• Posting information and participating in chat rooms or instant messaging systems for bfinance related communications require prior approval.
• Certain public communications require approval and retention.
• To avoid downloading a computer virus, do not open attached documents from unknown sources.
• Failure to comply with this policy may lead to disciplinary action.
Electronic Communications Defined
Electronic communications include (but are not necessarily limited to) the following:
• Electronic mail (email)
• Third-party email systems
• Internet Telephone
• Facsimile transmissions
• News Groups
• File Transfer Protocol (“FTP”)
• World Wide Web browsing (“WWW”)
• Intranet
• Electronic Bulletin Boards
• Internet Relay Chat (“IRC”) or similar "Chat Rooms"
• Instant Messaging Systems
• Remote Host Access (Telnet or TN3270)
• Other information transmissions via the Internet
Social Networking Sites (Regulatory Notice 10-06)
Social networking sites can fall into one or more of the electronic forms, including but not limited to chat rooms, Web sites, blogs, and bulletin boards and must comply with the various regulations on communications and advertising. Examples of social networking sites include, but are not limited to, “LinkedIn”, “Facebook”, and “Twitter”. While associated persons may use social networking sites as a personal means of communication, some sites, such as “LinkedIn”, are designed specifically to promote professional networking. The posting or sharing of any business related information on a social networking site is strictly prohibited. If a social networking site is used for personal reasons, business related information which may have been posted must be removed.
The CCO or a designee will no less than annual search the internet for the use of the Firm’s name or name of an associated person to monitor for compliance with this policy.
Instant Messaging (NTM 03-33)
Instant messaging is included in some internet services and provides the ability to conduct instant, online interactive "conversations." Employees must be aware that because instant messaging provides a method of recording and potentially keeping such conversations, they are treated as written communications subject to advertising, sales literature, and correspondence recordkeeping review and retention requirements. The use of instant messaging subjects those communications to review by bfinance, retention in its records, and potential delivery to regulators, legal authorities, or others in civil litigation or arbitrations. Instant messages are not appropriate for "confidential" communications.
Employees are not permitted to use instant messaging to conduct the Firm's business.
Guidelines for Proper Use
bfinance electronic communications systems should be used for business purposes. Electronic communications with customers and/or the public are permitted only through Firm sponsored or alternative approved facilities.
Electronic Communications are not Private
Employees should not confuse phone conversations or face-to-face conversations with communications through electronic means. Newspaper articles, regulatory actions, and legal actions abound with the consequences of employees who do not take what they say in electronic communications seriously. The repercussions of casual or poorly worded communications have potential adverse consequences for both bfinance and the employee. While electronic communications often seem like one-on-one conversations, and many people converse in electronic communications in a casual and non-business manner, it is important to understand that the use of bfinance’s electronic communications systems or approved alternative systems are communications that may be seen by others either through bfinance’s review system or outsiders who access this information through official and authorized means or sometimes through unauthorized means.
Electronic communications and residual or temporary files resulting from participation in electronic communications can be widely disseminated. It is possible that such communications be saved to disk, printed, forwarded to another party, subpoenaed in litigation, viewed by system administrators or regulatory agents, and/or intercepted by anyone at a variety of points. Electronic communications are not suitable for communications that must remain confidential or private, unless bfinance has arranged for encryption of confidential messages. There should be no expectations of privacy in electronic communications.
Communications Must Conform to Appropriate Business Standards and The Law
Users of bfinance ’ electronic communications systems are expected to follow appropriate business communication standards. Sending or receiving communications that are inappropriate, profane, obscene, discriminatory, threatening or otherwise offensive is prohibited. Sending or receiving jokes, puzzles, games, chain messages, pictures, video/sound files and frequent or long personal correspondence are some examples of inappropriate use. Use must comply with applicable local, state, federal and international laws.
Electronic Communications are Business Communications and Should be Treated as Such
• Electronic communications sent should contain the most recent, valid information available.
• Personnel are required to report threatening, harassing or otherwise inappropriate communications to their supervisor or Compliance.
• Communications received with inappropriate content must be deleted/discarded immediately without forwarding.
• Unauthorized dissemination of proprietary information is prohibited.
• Unauthorized copying or transmitting software or other materials protected by copyright is prohibited. Personnel must obtain Compliance Department approval before distributing copyrighted material.
• References and/or links to Web sites may be a form of sales literature or advertising and therefore require Compliance approval prior to use.
• Newly developed, non-Firm sponsored electronic communication technologies are inappropriate for bfinance communications without prior Firm approval.
• Because of the nature of electronic communications systems in general, there is no guarantee that a message will reach its destination in a timely manner or that it will reach its destination at all.
Encryption
• bfinance may require encryption of certain confidential communications.
• Users are responsible for controlling access to their own computer and encrypted messages.
• Employees may not use encryption unless authorized or directed by bfinance.
• Employees must use encryption when required by bfinance.
• Passwords should be safeguarded.
Special Requirements/Restrictions
• Securities licensing requirements necessary for public communications apply to electronic communications.
• Recommendations or communications that require an accompany prospectus may not be sent by email, unless bfinance has provided the required document for inclusion with the communication.
• If a message is received from a party requesting that they not be contacted, Compliance should be notified to add that person to bfinance’s Do Not Call List.
• Email to customers or prospective customers regarding bfinance’s products, services, or other bfinance related business communications may NOT be sent from a home computer and/or using non-Firm sponsored electronic communications.
Record Retention Requirements
Regulator's rules require that bfinance retain records of business communications. bfinance retains electronic communications in accordance with these rule requirements.
Required Pre-Use Review and Approval
Electronic communications sent to external recipients may need approval or pre-approval in accordance with bfinance policies and procedures established for written communications.
Monitoring, Audit and Control
Electronic communications through the Firm’s systems are the property of bfinance. bfinance reserves the right to monitor and audit electronic communications at any time for appropriate business usage, standards and compliance with this policy and applicable procedures. The Firm will test the integrity of the books and records maintained electronically during the annual privacy testing. The Firm has control measures in place to store documents in a format that does not allow them to be changed or altered.
Email
System Maintenance
As part of routine maintenance, email messages that are of a certain age or file-size may be automatically deleted from employee email inboxes.
Attachments
In order to avoid downloading a computer virus, employees should be instructed to not open attachments unless familiar with the source.
Restrictions on Unsolicited Emails (CAN-SPAM Act of 2003)
bfinance “does not” permit the sending of commercial email. The following procedures are for informational purposes in the event bfinance’s policy changes.
Federal law imposes restrictions on commercial email, particularly unsolicited "mass" email messages. "Commercial electronic mail" includes any electronic mail message primarily for the purpose of sending a commercial advertisement or promotion of a commercial product or service. It does not include electronic mail relating to transactions or where there is a relationship between the sender and the recipient.
Recipients of commercial email must be provided the opportunity to "opt-out" and not receive future emails. Anyone receiving notification from a customer or anyone else asking not to receive electronic mail, must forward that information to Compliance for adding to bfinance’s "Do-Not-Email" list.
Senders of commercial email may not:
• Use false or misleading email header information or deceptive subject headings or otherwise deceive the recipient regarding the sender's address.
• Without prior authorization, use computers owned by others to transmit messages.
• Register for an email address or domain name using materially false information or falsely represent themselves to be the registrants for Internet protocol addresses.
• Use "address harvesting" or "dictionary attacks" to obtain email addresses from the Internet.
• Use automated means to create multiple email addresses from which to send commercial email (e.g., using a computer program to create multiple "Yahoo" accounts).
• Each commercial email must include clear and conspicuous identification that the message is an advertisement or solicitation; a valid physical postal address of the sender; and a valid return address or other method for the recipient to "opt-out" from receiving further emails.
Internet
Personnel may not post any bfinance advertising or any business-related information without Compliance’s authorization.
bfinance will not maintain any Internet presence. Without prior authorization, personnel may not post information to the Internet or establish a web site containing any of the following:
• References to or information about bfinance;
• Communications involving investment advice;
• References to investment-related issues; or
• Links to any of the above.
This includes posting such information to the Internet through such means including, but not limited to, the World Wide Web, Electronic Bulletin Boards, FTP sites or any other method to establish their own Internet presence.
Chat Rooms
As interactive, extemporaneous conversations, chat rooms are considered a public forum. Participation in chat rooms is generally prohibited. If an employee wishes to participate in a chat room for business purposes, he or she must obtain prior written authorization from Compliance.
Failure to Comply
Failure to comply with this policy may lead to disciplinary action. Non-compliance may generate one or more of the following:
• Oral and/or written warning or notification of violation communicated to bfinance’s personnel involved and their supervisor.
• Suspension of electronic communications privileges permanently or for a set period of time.
• Messages may be blocked or rejected if the message contains inappropriate content.
• Written warning to the employee's file.
• Suspension from work.
• Education course related to the infraction, and paid for by the employee.
• Regulatory discipline or censure.
• Possible termination of employment.
Consent To Policy
Use of bfinance’s electronic communications systems represents the employee's consent to the terms outlined in this policy, including consent for bfinance to monitor and audit content and/or usage.
14 Advertising and Publishing Activities
Prior to issuing any advertising or writing any books, articles, newsletters, or other materials to be published in public media (magazines, newspaper, computer bulletin boards, Internet, etc.) for public access, employees must contact Compliance for review and approval. Approval is not required for use of materials already approved by bfinance and intended for public distribution.
PROTECTION OF CUSTOMER INFORMATION
1 Customer Privacy Policies and Procedures (SEC Regulation S-P)
Introduction
bfinance has adopted a Privacy policy that it provides to customers when a new account is opened. The Firm also sends a privacy notice to all customers on an annual basis. The Privacy policy explains bfinance’s procedures for safeguarding customer information and records and what information, if any, the Firm makes available to outside parties.
SEC Regulation S-P (“Privacy of Consumer Financial Information”) applies only to accounts for individuals (institutional accounts are not affected). The regulation also differentiates between “customers” (individuals with which bfinance has an established relationship) and “consumers” (where no pre-established relationship exists). For purposes of this section, bfinance considers any individual (and the legal representative acting on their behalf) from whom information is obtained to open an account or to obtain services or products from bfinance to be a “customer.” Also for purposes of this section, the term “consumer” is considered to be synonymous to “customer.”
The Privacy policy applies to all individual customers of bfinance, whether US or foreign residents.
"Public" vs. "Nonpublic" Personal Information about Customers
Generally, bfinance considers information provided to it by a customer or potential customer in the normal course of bfinance offering a product or service to be “nonpublic personal information.” Identifying whether information is “public” or “nonpublic” is important with regard to bfinance’s obligations if bfinance shares information with nonaffiliated third parties. Public information is information that bfinance reasonably believes may be obtained from three sources:
• Federal state or local government records
• Widely distributed media
• Disclosures to the general public required under federal, state, or local law
Nonpublic personal information also includes any list, description, or other grouping of customers (and publicly available information about them) derived from financial information that is not publicly available.
Sharing Nonpublic Financial Information
In the normal course of business, bfinance will share customer nonpublic financial information with service providers such as service bureaus. Agreements with such third parties include assurances regarding the protection of customer records and information. Information sharing with affiliated companies may also occur and this practice, if applicable, is disclosed in bfinance’s Privacy policy.
bfinance does not share customer nonpublic financial information with non-affiliated companies or non-exempt service providers.
Annual Notification
bfinance will provide all customers with an annual notice regarding bfinance’s Privacy Policy.
Protection of Customer Information And Records (SEC Regulation S-P, Rule 30(a) and SEC Release No. 34-50781; Fair and Accurate Credit Transactions Act of 2003, Section 216)
bfinance’s protection of customer information and records includes the following procedures:
• bfinance provides customers with a copy of its Privacy policy when new accounts are opened.
• Accounts that opt out will be coded to prevent the release of nonpublic financial information to nonaffiliated third parties.
• Electronically stored customer information is protected by passwords or other established controls within the Firm’s system to ensure only authorized persons gain access. For example, sales personnel may view information regarding accounts assigned to them but not the accounts assigned to others.
• bfinance protects its website with firewalls, a secure server, and anti-virus programs.
• Requests for customer information from outside parties such as regulators, the Internal Revenue Service, and other government or civil agencies are referred to Compliance for review and response.
• All agreements with other service providers include the third party’s privacy policy.
• bfinance will notify the FTC and SEC if customer information is stolen and customers are thus exposed to potential identity theft.
Disposal of Consumer Report Information and Records (SEC Regulation S-P, Rule 30(b) and SEC Release No. 34-50781; Fair and Accurate Credit Transactions Act of 2003, Section 216)
Consumer report information and records must be disposed of in a manner that prevents unauthorized access or use. To accomplish this, bfinance takes the following steps:
• It designates and trains specific employees to dispose of such information properly.
• It ensures that electronic information is destroyed or erased such that it cannot be practicably read or reconstructed.
• It ensures that paper documents containing such information are burned, pulverized, or shredded so that they cannot be practicably read or reconstructed.
• It ensures that trash containing destroyed media or documents involving consumer report information is securely removed.
2 Identity Theft Program (Fair and Accurate Credit Transactions Act of 2003, Section 114 and 315)
The FTC and the federal banking regulators have issued joint regulations implementing Sections 114 and 315 of the Fair and Accurate Credit Transactions Act of 2003 (“FACT Act”). The FTC’s Red Flags Rule requires a member firm that is a “financial institution” or “creditor” offering or maintaining “covered accounts” to develop, implement, and administer a written Identity Theft Prevention Program (“ITP Program”) to detect, prevent, and mitigate identity theft in connection with the opening of a covered account or the maintenance of any existing covered account. The Red Flags Rule also requires every member firm that is a financial institution or creditor to periodically reassess whether it offers or maintains covered accounts that would require it to have in place a written ITP Program.
The CCO will ensure that the Company carefully analyzes its customers and accounts to determine the extent to which it must comply with the FTC’s Red Flags Rule. While the definition of “covered accounts” generally applies only to retail accounts, the alternative definition would include any type of account (including institutional accounts) determined by the Firm to pose a reasonably foreseeable risk to its customers or to its own safety or soundness from identity theft.
Because the Company does not hold customer accounts directly or indirectly, it would not be considered a “financial institution,” and it is not a “creditor” because it does not extend credit. Therefore, at this time bfinance is not subject to the Red Flags Rule. The CCO will monitor the Firm’s business activities to see if any change would cause it to become subject to the Red Flags Rule.
3 SEC Regulation S-AM
Introduction
The Firm has adopted a Regulation S-AM policy that it provides to customers when a new account is opened. bfinance also sends an annual notice of its Regulation S-AM policy to all customers. The Regulation S-AM policy explains the Firm’s policies regarding safeguarding of customer information and records and whether the Firm shares information with outside parties.
SEC Regulation S-AM (“Limits on Affiliate Marketing”) limits use of certain information received from an affiliate to solicit a consumer for marketing purposes unless the consumer has been given notice and a reasonable opportunity and a reasonable and simple method to opt out of such solicitations.
Regulation S-AM applies to all individual customers of the Firm, whether US residents or foreign residents.
Opt Out Provision
The Firm provides all new customers with a copy of its Regulation S-AM policy upon account creation and on an annual basis thereafter as part of bfinance’s Privacy policy disclosures.
As part of this procedure, the Firm also must provide an Opt Out notice to all customers. Accounts that opt out will be coded to identify clients whose information should not be shared with affiliates for their marketing purposes.
The Opt Out notice included with the Regulation S-AM policy reads as follows:
Supervision
The appropriate Designated Principal will ensure that customers receive a copy of the privacy notice containing the Regulation S-AM opt-out provision on account inception and annually thereafter.
In addition, the Designated Principal will ensure that agreements with third parties receiving customer information reflect the third-party firm’s privacy policies. This responsibility is part of the overall supervision duties related to third-party arrangements
4 Holding Customer Mail
Generally, bfinance prohibits “holding” customer mail. In the event a customer requests mail to be held, the Company requires a written request from the customer. The customers’ written request must include the circumstances for the request, as well as the duration. The Designated Principal will review and approve holding customer mail in a specified location.
5 Encryption Requirement When Sending Documents to FINRA
FINRA requires that information provided to it by “portable media device” pursuant to a request under FINRA Rule 8210 must be encrypted. Portable media devices would include devices such as a CD-ROM, DVD, or portable hard drive. The encryption requirement protects personal information. Encryption means that “data must be encoded into a form in which meaning cannot be assigned without the use of a confidential process or key.”
The CCO will ensure that all documents sent to FINRA pursuant to a request under FINRA Rule 8210 are encrypted. The CCO will work with the Firm’s Information Technology (“IT”) personnel to establish an encryption process. As part of this process, the CCO will make sure, with the help of IT personnel, the Company
• uses an encryption method that meets industry standards for strong encryption; and
• provides FINRA staff with the confidential process or key for the encryption in a communication separate from the encrypted information itself (for example, in a separate email, fax, or letter).
According to FINRA Regulatory Notice 10-59, FINRA views the industry standard for encryption to be 256-bit or higher encryption.
Evidence of the fulfillment of this requirement will be included as part of the signoff by the CCO or other registered principal designated to respond to FINRA requests for documentation.
ANTI-MONEY LAUNDERING (FINRA Rule 3310; Bank Secrecy Act)
1 Introduction
bfinance is obligated to comply with BSA requirements to prevent and detect money laundering. This section outlines bfinance’s anti-money laundering (“AML”) program, including report filing and recordkeeping requirements. The program has been reviewed and approved by a member of senior management.
2 AML Compliance Officer
bfinance’s Compliance Officer (“AMLCO”) is responsible for developing policies, procedures, and internal controls to achieve compliance with AML rules and regulations. Additionally, on an annual basis, the Firm’s senior management must approve the AML program in writing. He/she must attest the AML program is reasonably designed to achieve and monitor the firm’s ongoing compliance with the requirements of the BSA and the implementing regulations under it.
3 Definitions
The use of the term "account" in this section is understood to mean a formal relationship (e.g., engagement letter) with a customer established to effect transactions in securities, including, but not limited to, the purchase or sale of securities, securities loaned and borrowed activity, and the holding of securities or other assets for safekeeping or as collateral.
The use of the term "customer" in this section is understood to mean: (a) a person that opens a new account (e.g., establishes a formal relationship); and (b) an individual who opens a new account for an individual who lacks legal capacity or for an entity that is not a legal person.
The use of the term “individual” in this section is understood to mean a natural person.
The use of the term “non-individual” in this section is understood to mean a non-natural person such as a corporation, partnership, trust, etc.
The use of the term “person” in this section is understood to mean an individual or non-individual.
4 Independent AML Program Testing
The AMLCO will, on an annual basis at minimum, arrange for testing the effectiveness of the Firm’s AML program. bfinance will hire an outside consultant to conduct the testing if it does not have employees that it considers to be qualified and independent.
5 Employee AML Program Education
bfinance provides all employees with a copy of its Anti-Money Laundering policy upon hire. In addition, the Firm may include AML training in its ongoing CE Firm Element, circulate its AML policy periodically, and provide other AML educational programs directed at specific employees.
6 Customer Identity Verification
As part of bfinance’s AML Program, obtaining specific information about customers is important when opening a new account. Doing so helps the RR to “know the customer” and provide suitable recommendations and service to the account.
When opening new accounts, federal law requires that customer identity must be verified. Customer identification (ID) information must be completed on the new account application.
• The requirement for customer ID verification does NOT apply to accounts for persons with an existing bfinance account at bfinance (unless the account requires the AMLCO’s approval – see note below);
• banks;
• governmental entities;
• issuers of listed equity securities;
• other financial institutions subject to regulation by the SEC, CFTC, Federal Reserve Board, Office of the Comptroller of the Currency (“OCC”), FDIC, Office of Thrift Supervision, or the National Credit Union Administration; and
• persons opening accounts to participate in an ERISA plan.
Note: Accounts that require additional AMLCO approval and that are subject to customer ID verification procedures include numbered accounts, accounts demanding confidential handling, accounts domiciled in countries defined as high risk for money laundering by Treasury Department, foreign public officials, and certain foreign banks.
Required Customer Information
bfinance’s customers currently only consist of institutions. Therefore, requests for information on individuals will only be applied where the Firm’s customer base expands to retail and/or high net worth individuals.
As required by law, the basic information bfinance needs to collect prior to opening a new account includes:
• Name
• Date of birth, for an individual
• Address:
• For an individual, residential or business address. If no street address exists or is available, an APO or FPO box number or the residential or business street address of a next of kin or another contact individual
• For a non-individual (corporation, trust, etc.) a principal place of business, local office, or other physical location.
• Taxpayer identification number for a U.S. person (U.S. citizen or non-individual established or organized under U.S. or state laws).
• Identification number for non-U.S. person which may include a taxpayer ID number; passport number and country of issuance; alien identification card number; or the number and country of issuance of any other government-issued document evidencing nationality or residence and bearing a photo or similar safeguard.
In the case of a customer who has applied for a taxpayer identification number but has not yet received it, notation must be made on the new account application that the taxpayer ID has been applied for. The account will be restricted to liquidating transactions if the taxpayer ID number is not received within 5 days of opening the account.
Customer ID Verification for Accounts for Individuals
bfinance’s customers will only consist of institutions. Should their customer base expand to retail and/or high net worth individuals, the Firm will follow the following procedures:
When opening new accounts for individuals, employees should
• request an unexpired government-issued identification that includes a photo and nationality or residence, such as a driver’s license or passport, and record information from it on the new account application; or
• make a photocopy of the photo ID and include this with the new account application.
Note that the employee opening the account must see the original photo ID or copy when recording the information. This information may not be taken from a customer over the phone.
If a photo ID is unavailable when the new account application is being completed, the RR should indicate on the application whether the customer will provide a copy of photo ID within five days of account opening or, if the customer cannot provide a photo ID, note the reason.
If a photo ID is not received within five days, the account will be restricted to liquidating transactions until the ID is received.
If a customer has not appeared in person at bfinance’s office, “non-documentary” information (described below) will also be required for the new account application. If a customer cannot produce the required photo ID, an explanation must be included on the new account application and non-documentary information will be required to open the account.
Customer Identification Third Party Accounts
Please follow these guidelines in securing required customer ID verifications for third-party accounts:
• In cases of legally incompetent persons, please obtain customer ID information for the person holding power of attorney.
• When a third party has power of attorney or authorization to trade, please obtain the account owner’s customer ID information. Customer ID information is usually unnecessary for the individual with authority over the account. The exceptions would be instances where the RR is not familiar with that person or where the account opening circumstances raise questions (for example, if the customer requires funds to be wired offshore or if the third party is a foreign citizen).
Omnibus and Sub-Accounts (SEC Q&A Regarding the Broker-Dealer Customer Identification Program Rule, October 1, 2003)
Omnibus accounts and sub-accounts are sometimes established by or on behalf of financial intermediaries. The purpose of these accounts is to execute transactions that clear or settle at another financial institution, or to deliver assets to a beneficial owner’s custody account at another financial institution. With these accounts, bfinance uses limited information about the beneficial owner primarily to assist the financial intermediary with recordkeeping or to establish sub-accounts to hold positions for transfer to another financial institution. The financial intermediary initiates transactions. The beneficial owner has no direct control over the omnibus or sub-accounts.
Under these circumstances, bfinance is not required to look through the intermediary to the underlying beneficial owners if the intermediary has been identified as the accountholder.
Accounts for Non-Individuals
When opening an account for a non-individual, the Firm will attain the following:
▪ Name of Company
▪ Address
▪ Employer Identification Number
▪ Documents showing the existence of the entity, such as:
o Articles of Organization
o Trust Instrument
o Articles of Incorporation
o Partnership Agreement
o Government-issued Business License
These documents must be obtained within 5 days of engaging a customer to satisfy the requirement.
In addition, the Firm will maintain the following documents:
▪ Subscription Agreement, where applicable
▪ Offering Memorandum, where applicable
▪ Customer Intake Questionnaire
▪ Engagement letter
Additional Identifying Information for Non-Individuals
In addition to the customer information retained above, the Firm may request and/or retain the additional information listed below if deemed necessary and relevant to the transaction the Firm will potentially engage in:
• Financial statements
• The following information as it relates to the owners, directors and/or officers of the customer
o Name
o Date of birth
o Address
o Identification number
o Documentary verification including information from or copies of government-issued IDs or passports
Non-Documentary Methods of Verifying Customer Identification
Non-documentary methods of verifying customer ID involve other procedures. Non-documentary methods must be used in the following circumstances:
• An individual is unable to present acceptable photo ID
• The documents presented are unfamiliar
• The account is opened without obtaining documents
• The customer opens the account without appearing in person at bfinance
• The account is opened under other circumstances, at the discretion of the RR's supervisor, New Accounts, and/or the AMLCO, where bfinance is unable to verify the customer's identity
Under any of these circumstances, the RR must indicate the following non-documentary methods on the new account application:
• Direct customer contact information
• Obtaining a financial statement
Additional Verification For Certain Customers
For the following types of customers, a minimum of two forms of customer ID are required in addition to the AMLCO’s review and approval prior to opening an account:
• Accounts domiciled in high-risk countries as identified by the Office of Foreign Assets Control (“OFAC”) (Operations personnel can provide this list or it can be found at the OFAC website)
• Accounts for foreign public officials (individuals in high office in other countries, their families and close associates, political party officials)
Lack of Acceptable Customer ID Verification
Accounts will not be opened for customers who present unacceptable customer ID at the time of account opening.
For customers who fail to provide required ID or documents within five days of account opening, the account will be restricted to liquidating transactions only until satisfactory ID verification is received.
For customers where the non-documentary verification results in substantive unresolved discrepancies (e.g., inconsistent name, address, taxpayer ID number information), an account will not be opened. If an account has already been opened, it will be closed immediately.
Questions regarding accounts that do not comply with customer ID verification requirements should be referred to the AMLCO.
Customer Notice
bfinance notifies customers, prior to account opening, that their identity will be verified. This notice may appear on bfinance’s website, on new account applications, or in other disclosures provided at the account opening.
7 OFAC List and Blocked Property (Dept. of Treasury, various statutes)
bfinance is obligated to comply with requirements to block the property of sanctioned persons or entities and prevent the transfer of assets to such persons or entities. In addition, bfinance must block securities issued by sanctioned countries and other sanctioned issuers. OFAC is responsible for enforcing sanctions and publishes sanctions information on its website (ofac). The information is divided into several categories, including
• the Specially Designated Nationals (“SDNs”) list,
• Counter Terrorism Sanctions,
• Counter Narcotics Trafficking Sanctions, and
• other OFAC sanctions programs related to specific countries or regions.
OFAC requirements apply to all persons and entities under US jurisdiction, including foreign branches of US institutions and foreign institutions that operate in the US.
The term “OFAC list” in this section encompasses all sanctions published by OFAC even though the information may appear in multiple lists. bfinance prohibits transactions with sanctioned parties and will file reports with OFAC as necessary.
Prohibited Transactions
bfinance prohibits transactions in any account on behalf of a sanctioned party or in certain blocked securities. In such cases, securities and funds may not be released and securities transactions may not be executed. Securities and funds may be deposited to a blocked account, but no securities or funds will be released until the account is no longer subject to sanctions. Funds or securities may not be transferred to sanctioned parties.
Because transactions for blocked accounts are prohibited, all open orders for such accounts must be cancelled.
Blocking Requirements
Blocking requirements are generally triggered under the following circumstances:
• An account is opened for someone on an OFAC list.
• The owner of an existing account is added to an OFAC list.
• bfinance identifies a security in a customer account where the issuer is the subject of sanctions.
• A customer requests to pay or transfer funds or securities to a blocked person or entity.
While title to blocked property remains with the blocked person or entity, transactions affecting the property (including asset transfers) cannot be made without OFAC authorization. Debits to blocked accounts are prohibited, but credits may be accepted. Cash balances in blocked accounts must earn interest at commercially reasonable rates. Blocked securities may not be paid, withdrawn, transferred (even in book transfer), endorsed, guaranteed, or otherwise altered.
Opening an account for a blocked person is not a violation. The violation occurs when the account is not frozen and assets are allowed to transfer out of it. In addition, OFAC restrictions may vary depending on the blocked person or entity. Details of blocking requirements are explained at the OFAC website.
Monitoring Procedures
Monitoring is to be conducted as follows:
• Compliance should be aware of the countries included on the OFAC list, to watch for new accounts to be opened for or requests to transfer funds or securities to residents of those countries.
• Compliance monitors checks received and disbursed activity, wire activity to identify patterns which may indicate suspicious activity.
Other Requests to Monitor Accounts
Regulators or law enforcement agencies may ask the industry's cooperation in identifying accounts for individuals or entities under investigation or suspected of criminal activities.
The AML Compliance Officer is responsible for responding to such requests; providing the necessary information; and retaining records of requests, reviews conducted pursuant to requests, and information provided to authorities.
Blocking Property
Any blocked account will not be permitted to engage in transactions other than the acceptance of deposits of funds or securities.
Open orders of blocked accounts will be cancelled.
Reporting Blocked Property and Legal Actions
When bfinance blocks an account or disbursement or identifies a blocked, the Firm will notify OFAC within ten days of blocking. If bfinance blocks an account or security, it will be responsible for filing the necessary report with OFAC. Reports filed by bfinance will be retained in a file of blocked accounts or securities. Information to be reported includes:
• Owner or account party
• Property and property location
• Existing or new account number
• Actual or estimated value
• Date property was blocked
• Copy of the payment or transfer instructions
• Confirmation that funds have been deposited in a blocked account that is identified as blocked
• Name and phone number of contact person at bfinance
For rejected disbursements, the following information is to be filed:
• Name and address of the transferee financial institution
• Date and amount of the transfer
• Copy of the payment or transfer instructions
• Basis for rejection
• Name and phone number of contact person at bfinance
Legal Actions involving Blocked Property
U.S. persons involved in litigation, arbitration, or other binding alternative dispute resolution proceedings regarding blocked property must provide notice to OFAC. Copies of all documents associated with the proceedings will be submitted by Compliance within 10 days of their filing to the OFAC Chief Counsel at the U.S. Treasury Department. In addition, information about the scheduling of any hearing or status conference will be faxed to the OFAC Chief Counsel.
Blocking Disbursements
Disbursements of funds or securities may not be made to sanctioned parties.
Monitoring Procedures
Monitoring should be conducted as follows:
• Compliance will monitor the countries included on the OFAC list and watch for new accounts to be opened for or requests to transfer funds or securities to residents of those countries.
• Compliance will monitor checks received, disbursed activity, and wire activity to identify patterns that may indicate suspicious activity.
Other Requests to Monitor Accounts
Regulators or law enforcement agencies may ask the industry to cooperate in identifying accounts for individuals or entities under investigation or suspected of criminal activities.
The AMLCO is responsible for responding to such requests and providing the necessary information, as well as retaining records of the requests, the reviews conducted pursuant to requests, and the information provided to authorities.
Role of Operations Personnel
Operations personnel are an important first line of defense against transactions with sanctioned parties. These personnel should follow the guidance below to ensure the identification of blocked parties and prevention of prohibited transactions. Any questions regarding accounts or transactions should be referred to Compliance.
• Operations personnel should familiarize themselves with countries on the OFAC list.
• When processing account openings, Operations personnel should question any accounts being opened for residents of OFAC list countries.
• Operations personnel should question requests to transfer funds or securities to residents or entities domiciled in any OFAC list country.
8 Acceptance of Cash Deposits
bfinance does not accept cash or currency from customers. If a customer attempts to deposit cash or currency, the employee receiving the deposit must refuse it and advise the customer that bfinance only accepts checks.
In the event cash is inadvertently accepted, employees must take the following steps:
• Give the cash to the Firm cashier or another authorized Operations person immediately.
• The CFO must count the cash with two people present to verify the amount. The CFO then enters the amount into bfinance’s customer account system for credit to the customer’s account.
• Immediately thereafter, the cash must be deposited in bfinance’s bank and credited to the account maintained for customer benefit.
• If the amount received exceeds $10,000 for one person on any one day, the CFO must file Form 4789 (Currency Transaction Report, or “CTR”) with the IRS no later than fifteen calendar days after receiving the cash.
• Finally, the CFO should retain and maintain records of any forms filed with FinCEN and the IRS with regard to the inadvertent receipt of cash.
Cash Equivalents
In addition, bfinance does not accept deposits of cash equivalents such as traveler’s checks or money orders. Customers attempting to deposit cash equivalents should be refused and then advised to use a personal check when making deposits to their accounts.
Reporting Requirements (Exchange Act Rule 17a-8)
The following summarizes the reporting requirements under the BSA. bfinance’s Designated Principal of Operations is responsible for maintaining records of any required reports filed by the Company.
Transactions Involving Currency over $10,000
As noted above, if bfinance accepts a currency deposit exceeding $10,000, it must file a CTR with the Financial Crimes Enforcement Network (“FinCEN”). Multiple transactions by the same person that sum to more than $10,000 in any one day must also be reported.
“Currency” is defined as US coin and paper money or the legal tender of other countries. Currency also includes US silver certificates, US notes, Federal Reserve notes, and official foreign bank notes customarily used and accepted as a medium of exchange in a foreign country.
Transactions involving Currency or Bearer Instruments over $10,000 Transferred into or Outside the U.S.
Broker-dealers must file a Currency and Monetary Instrument Transportation Report (“CMIR”) with the U.S. Customs Service to report transactions in currency and/or bearer instruments transported into or out of the US that alone or in combination exceed $10,000. This filing is not required for currency or other monetary instruments shipped through the postal service or by common carrier.
State Reporting Requirements
States have adopted various currency and suspicious activity reporting requirements. Most states receive, by agreement with FinCEN, copies of forms filed with the agency by broker-dealers. Some states, however, require a duplicate state filing when broker-dealers file with a federal agency. bfinance will file reports as required under state requirements.
Foreign Financial Accounts
Broker-dealers that maintain accounts in foreign jurisdictions with aggregate balances exceeding $10,000 must file a Report of Foreign Bank and Financial Accounts (“FBAR”) with FinCEN on or before June 30 of each calendar year for accounts maintained during the previous calendar year.
bfinance does not maintain foreign financial accounts.
Recordkeeping Requirements
In addition to maintaining records of reports filed with the IRS or other authorities, broker-dealers must maintain records of certain transactions for potential inspection by regulators and other authorities. bfinance will maintain all documentation related to its AML program for a minimum of five years.
Funds Transfers
Broker-dealers are required to collect information and maintain records for domestic and international funds transfers (including wire fund transfers) of $3,000 or more, with certain exceptions. Specific information is also required to accompany the wire transfer of funds.
“Joint Rule” and the “Travel Rule,” respectively). Both of these rules cover a broad range of methods for moving funds, including wire transfers, certain internal transfers, as well as transmittal orders or instructions made in person or by telephone, facsimile, or electronic messages sent or delivered by a customer. The definition includes all funds transmittals made within the United States regardless of whether the transmittal originates or terminates abroad. In addition, the identity of transmitters and recipients that are not “established customers” must be verified. The Firm’s clearing firm will assist in meeting these requirements. Each transmittal order must contain the following information:
1. Name of the transmitter;
2. Account number of the transmitter, if used;
3. Address of the transmitter;
4. Identity of the transmitter’s financial institution;
5. Amount of the transmittal order;
6. Execution date of the transmittal order;
7. Identity of the recipient’s financial institution and, if received:
– name of the recipient;
– address of the recipient;
– account number of the recipient; and
– other specific identifier of the recipient.
Bfinance will also verify the identity of transmitters and recipients of customers for whom we have not obtained the customer name, address, and taxpayer ID number (for non-US citizens, foreign country ID or passport number including country of issuance).
An intermediary financial institution must pass on all information it receives from a transmitter’s financial institution or the preceding intermediary financial institution. It does not, however, have a general duty to retrieve information not provided by the transmitter’s financial institution or the preceding intermediary financial institution except under lawful order or if a request from another financial institution is made to a recipient’s financial institution, if the transmitter’s financial institution is unknown. If the system used to effect the funds transmittal is not designed to include ID information, the name, address, and account information of the transmitter and the identity of the transmitter’s financial institution need not be passed on until the institution sending the order completes its conversion to the expanded Fedwire message format (31 C.F.R. §103.33(f)).
National Security Letters
The AMLCO will handle National Security Letters (NSLs), which are written investigative demands from the Federal Bureau of Investigation and other federal government authorities. The AMLCO must ensure that NSLs remain confidential and that personnel made aware of an NSL on a need-to-know basis keep the information confidential as well. NSLs must not be referenced in Suspicious Activity Report (“Form SAR-SF”) filings.
9 Detecting Potential Money Laundering
bfinance may periodically include AML topics as part of its CE and other educational programs for employees. In addition, bfinance monitors reports to detect questionable patterns of activity. Compliance reviews these reports and refers any instances of suspicious activity to the proper authorities.
10 Information Sharing Between Financial Institutions (USA PATRIOT Act Sec. 314)
Under an AML regulation, financial institutions may share information regarding those suspected of terrorist or money laundering activities. Information sharing is not required but is permitted solely for the purpose of facilitating identification and reporting. The regulation provides immunity from other laws restricting information sharing if the regulation’s certification and confidentiality requirements are satisfied.
Institutions that share information must provide FinCEN with a certification that provides the name of the institution and its contact person and that confirms, among other things, that the institution will maintain adequate procedures to protect the security and confidentiality of the shared information and that the information will be used only for the authorized purpose. The certification form can be completed online at fincen. Such certifications must be renewed annually if information sharing continues.
bfinance will share information with other financial institutions to help identify and report activities that may involve terrorist acts or money laundering activities and to determine whether the Firm should establish or maintain certain accounts or engage in certain transactions. The AMLCO is responsible for compliance with the FinCEN certification requirements. All information will be treated as confidential and maintained in the AMLCO’s files. These records may be kept in hard copy or in password-protected electronic files.
In addition, the AMLCO must verify that any financial institution with which bfinance shares information (including affiliates) has also filed the requisite certification. This verification entails requesting and receiving a written letter or attestation from the other financial institution. Such documents will be maintained in the AMLCO’s files. The AMLCO may also consult a list provided by FinCEN to confirm the other institution’s certification. If this verification method is used, the AMLCO must maintain a record of it as well.
11 Suspicious Activity Reports (“SARs”) (USA PATRIOT Act Sec. 356; NTM 02-47)
bfinance is required to file SAR for transactions that may be indicative of money laundering activity.
Identification of Potential Suspicious Activity
bfinance uses several tools to identify possible suspicious activity, including
• education of all bfinance personnel, particularly supervisors in Operations areas;
• Operations Department review of wire activity log, checks received, and the disbursed blotter; and
• the AMLCO’s review of employee reports of potential suspicious activity.
The following examples (not a definitive list) describe indicators that suggest potential money laundering activity.
• Customer exhibit unusual concern regarding bfinance’s compliance with government reporting requirements and bfinance’s AML policies, particularly with respect to their identity, type of business, and assets.
• The customer is reluctant or refuses to reveal any information concerning business activities or furnishes unusual or suspect identification materials or business documents.
• Customers wish to engage in transactions that lack business sense or an apparent investment strategy.
• Customers want to engage in transactions that are inconsistent with their stated business strategy.
• The information provided by customers to identify a legitimate source for funds is false, misleading, or substantially incorrect.
• Upon request, customers refuse to identify or fail to indicate any legitimate source for their funds and other assets.
• Customers (or persons publicly associated with customers) have a questionable background or are the subject of news reports indicating possible criminal, civil, or regulatory violations.
• Customer exhibits a lack of concern regarding risks, commissions, or other transaction costs.
• Customers appear to be acting as an agent for an undisclosed principal but decline or are reluctant, without legitimate commercial reasons for being so, to provide information or are otherwise evasive regarding that person or entity.
• Customers have difficulty describing the nature of their business or lack general knowledge of their industry.
• Customers attempt to make frequent or large currency deposits, insist on dealing only in cash equivalents, or ask to be exempted from bfinance’s policies relating to the deposit of cash and cash equivalents.
• Customers engage in transactions involving cash or cash equivalents or other monetary instruments that appear to be structured to avoid the $10,000 government reporting requirements, especially if the cash or monetary instruments are in amounts just below the reporting or recording thresholds.
• For no apparent reason, customers have multiple accounts under a single name or multiple names, with a large number of inter-account or third-party transfers.
• Customers are from, or have accounts in, a country identified as a non-cooperative country or territory by the Financial Action Task Force (FATF).
• Customer accounts have unexplained or sudden extensive wire activity, especially in accounts that had little or no previous activity.
• Customer accounts show numerous currency or cashier’s check transactions aggregating to significant sums.
• Customer accounts have a large number of wire transfers to unrelated third parties inconsistent with the customers’ legitimate business purpose.
• Customer accounts have wire transfers that have no apparent business purpose to or from a country identified as a money laundering risk or a bank secrecy haven.
• Customer accounts indicate large or frequent wire transfers that are immediately withdrawn by check or debit card without any apparent business purpose.
• Customers make a funds deposit followed by an immediate request to wire or transfer the money a third party or another firm without any apparent business purpose.
• Customers make a funds deposit to purchase a long-term investment followed shortly thereafter by a request to liquidate the position and transfer the proceeds out of the account.
• Customers engage in excessive journal entries between unrelated accounts without any apparent business purpose.
• Customers request a transaction to be processed in a manner that avoids bfinance’s normal documentation requirements.
• Customers, for no apparent reason or in conjunction with other “red flags,” engage in transactions involving certain types of securities, such as penny stocks, Regulation S (Reg S) stocks, and bearer bonds, which although legitimate, have been used in connection with fraudulent schemes and money laundering activity. (Such transactions may warrant further due diligence to ensure the legitimacy of the customer's activity.)
• Customer accounts show an unexplained high level of account activity with very low levels of securities transactions.
• Customers maintain multiple accounts or maintain accounts in the names of family members or corporate entities for no apparent business purpose or other purpose.
• Customer accounts have inflows of funds or other assets well beyond their known income or resources.
SAR Filing Requirement
A SAR must be filed for any transaction that, alone or in aggregate, involves at least $5,000 in funds or other assets, where bfinance knows, suspects, or has reason to suspect that the transaction (or a pattern of transactions of which the transaction is part) falls into one of the following categories:
• Transactions involving funds derived from illegal activity or intended or conducted to hide or disguise funds or assets derived from illegal activity
• Transactions designed, whether through structuring or other means, to evade the BSA requirements
• Transactions that appear to serve no business or apparent lawful purpose
• Transactions that are not the sort of transactions in which a particular customer would be expected to engage in and for which bfinance can find no reasonable explanation after examining the available facts
• Transactions that involve using bfinance to facilitate criminal activity
Excluded from the filing requirement are violations otherwise reported to law enforcement authorities, such as
• a robbery or burglary reported to law enforcement authorities;
• lost, missing, counterfeit, or stolen securities reported pursuant to 17f-1;
• a violation of federal securities laws or FINRA rules by bfinance, its officers, directors, employees, or RRs reported to the SEC or FINRA, except for violations of Rule 17a-8 (Financial Recordkeeping and Reporting of Currency and Foreign Transactions), which must be reported on SARs.
Filing Deadlines
If bfinance determines that an SAR must be filed directly with FinCEN, the AMLCO will file the report within thirty days of becoming aware of the suspicious transaction. If a suspect has not been identified within thirty calendar days of detection, reporting may be delayed an additional thirty calendar days if necessary to aid in identifying a suspect but no later than sixty days from date of initial detection.
If violations require immediate attention (e.g., terrorist financing or ongoing money laundering schemes), the AMLCO will notify the appropriate law enforcement agency immediately by telephone. Suspicious transactions related to potential terrorist activity may also be reported to FinCEN’s Financial Institutions Hotline (1-866-556-3974). In either event, a SAR must be filed.
Retention of Records
The AMLCO will retain copies of SARs filed with FinCEN and all related documents for five years from the filing date.
Prohibition against Disclosure
By statute and regulation, bfinance may not inform customers or third parties of any transactions reported as suspicious. US Treasury and Federal Reserve Board regulations prohibit bfinance from producing SARs in response to subpoenas. If the Firm receives such requests, it must report them to FinCEN and the Federal Reserve Board and provide a description of bfinance’s response.
Compliance (or bfinance’s legal counsel) is responsible for responding to such subpoena requests. Compliance is also responsible for notifying FinCEN and the Federal Reserve when subpoenas for SARs are received.
SAR Sharing with Foreign or Domestic Parent Entities
The Company is a wholly owned subsidiary of bfinance International Ltd. (“bfinance International”). On January 20, 2006, FinCEN issued guidance permitting, under certain conditions, SARs to be shared with foreign or domestic parent entities. bfinance may share its SARs with bfinance International. However, before it does so, the AMLCO must have in place a written confidentiality agreement or a written arrangement with bfinance International where the parent firm pledges to protect the confidentiality of the SARs through appropriate internal controls.
12 Requests and Written Notices from Enforcement Agencies
Under the BSA, financial institutions must respond to federal banking agency requests for information relating to anti-money laundering compliance. The rule requires firms to provide information and account documentation as requested for any account opened, maintained, administered or managed in the US. The AMLCO maintains records of any information provided in response to regulator requests. These records include the request, the date of response, and the information provided.
Compliance with Federal Banking Agency Information Requests - 120-Hour Rule (USA PATRIOT Act Sec. 319(b))
Upon receiving a request from a federal banking agency, the AMLCO will provide the requested information within five days (120 hours) of receiving the request or will make the information available for inspection by the banking agency.
Compliance with FinCEN Information Requests (USA PATRIOT Act Sec. 314)
FinCEN sends law enforcement requests to financial institutions under Section 314(a) of the USA PATRIOT Act. FinCEN information requests should be forwarded to the AMLCO for response. Upon receipts of such requests, the AMLCO or a designee must review FinCEN’s website for within two weeks of receipt of the request. If a match is identified with a named subject, the Subject Information Form (included with FinCEN’s request) will be forwarded to FinCEN by email to sys314a@fincen. or, if email is not available, by fax to 703-905-3660.
FinCEN requests are confidential and may not be disclosed to the subject of the request. bfinance will not use information provided to FinCEN for any purpose other than to (i) report to FinCEN as required under Section 314, (ii) determine whether to establish or maintain certain accounts or to engage in certain transactions, or (iii) to help ensure compliance with other Section 314 requirements.
13 Foreign Bank Correspondent Accounts (USA PATRIOT Act Sec. 313; Bank Secrecy Act 103.185)
For written information requests from federal law enforcement officers regarding foreign bank correspondent accounts, the AMLCO will provide the requested information no later than seven days after receiving the request.
When the Treasury Department or US Attorney General notify bfinance that a foreign bank failed to comply with a summons or subpoena or contest it in a US court, Compliance will terminate any correspondent relationships with that bank within ten business days of receiving the notice.
14 Customer Identification Program (“CIP”) (USA PATRIOT Act Sec. 326; NTM 03-34)
New account openings are subject to bfinance’s CIP. According to the USA PATRIOT Act, all financial institutions must verify the identity of individuals wishing to conduct financial transactions. The law requires institutions to develop appropriate CIPs that specify the identifying information to be obtained from each customer when a new account is opened. Firms must also develop reasonable and practical risk-based procedures for verifying a customer’s identity. The goal of CIPs is provide firms with a reasonable belief that they know the true identify of each customer.
This section outlines bfinance’s CIP supervisory procedures. Note that the use of the term “customer” here includes prospective customers.
Responsibilities
The following chart summarizes the responsibilities for conducting and complying with bfinance’s CIP.
|AMLCO |Develop CIP review for approval of specific accounts (e.g., numbered |
| |accounts). |
| |Request additional ID information if necessary. |
| |Consider filing SAR for suspicious accounts. |
| |Review discrepancies referred by New Accounts personnel |
|Registered Representatives |Obtain required CIP information for new accounts. |
|Registered Representative Supervisors |Ensure that required CIP information has been obtained prior to |
| |approving accounts. |
| |Review CIP information for adequacy and discrepancies and approve or |
| |disapprove accounts accordingly. |
|New Accounts Personnel |Confirm CIP information has been obtained for accounts to be opened. |
| |Reject accounts with deficient customer ID information and return to |
| |the RR’s supervisor. |
| |Refer accounts requiring additional review before approval to the |
| |AMLCO. |
| |Refer suspicious or questionable accounts to the AMLCO. |
| |Note on account records if account is limited to certain transactions|
| |until ID information is received. |
| |Identify discrepancies in information received from consumer |
| |reporting agencies or other vendors used to verify customer identity |
| |and refer these to the AMLCO. |
AMLCO Approval Requirements for New Accounts
The following accounts require the AMLCO’s review and approval at the time of opening. As part of this process, the AMLCO may require additional customer ID information before approving such accounts.
• Numbered accounts (accounts designating a number rather than a name as the account name)
• Any account bearing a request for confidential handling of name, delivery of confirmations and statements, and other information
• Accounts domiciled in countries identified by OFAC or FATF as having inadequate anti-money laundering standards or at high risk for crime and corruption
• Accounts for Foreign public officials, including individuals in high offices of foreign governments, political party officials, and their families and close associates (if known and/or readily identifiable)
• Accounts for foreign banks that require certification will be required[3]
Minimum Identifying Information
bfinance’s customers currently only consist of institutions. Therefore, requests for information on individuals will only be applied where the Firm’s customer base expands to retail and/or high net worth individuals.
Accounts for Non-Individuals
When opening an account for a non-individual, the Firm will attain the following:
▪ Name of Company
▪ Address
▪ Employer Identification Number
▪ Documents showing the existence of the entity, such as:
o Articles of Organization
o Trust Instrument
o Articles of Incorporation
o Partnership Agreement
o Government-issued Business License
These documents must be obtained within 5 days of engaging a customer to satisfy the requirement.
In addition, the Firm will maintain the following documents:
▪ Offering Memorandum, where applicable
▪ Customer Intake Questionnaire or Investor Intake Checklist
▪ Engagement letter
Additional Identifying Information for Non-Individuals
In addition to the customer information retained above, the Firm may request and/or retain the additional information listed below if deemed necessary and relevant to the transaction the Firm will potentially engage in:
• Financial statements
• The following information as it relates to the owners, directors and/or officers of the customer
o Name
o Date of birth
o Address
o Identification number
o Documentary verification including information from or copies of government-issued IDs or passports
CIP Records
Customer identification verification records are retained with new customer records in accordance with rule recordkeeping requirements including:
▪ Information recorded on the Customer Intake Questionnaire
▪ Documents showing the existence of the entity, such as:
o Articles of Organization
o Trust Instrument
o Articles of Incorporation
o Partnership Agreement
o Government-issued Business License
▪ Non-documentary verification
▪ Account approval or disapproval
▪ Resolution of discrepancies
▪ Referral of the account to the AML Compliance Officer
▪ Closing of an account that fails to meet CIP requirements
▪ Other records as may be required
Comparison with Government Lists
As required by law, bfinance compares customer information against government lists.
Customer Notice
Customers are notified prior to engaging them that, as required by law, their identities will be verified. Customer identification notices appear as follows:
▪ On bfinance’s web site; and
▪ On the Customer Intake Questionnaire.
15 Correspondent Accounts (USA PATRIOT Act Secs. 312 and 313)
bfinance has established procedures for opening accounts for foreign banks that are consistent with AML regulation requirements. The AMLCO is responsible for conducting special due diligence for foreign bank correspondent accounts.
Special Due Diligence for Private Banking Accounts (USA PATRIOT Act Sec. 312)
bfinance is required to identify the nominal and beneficial account holders of, and the source of funds deposited to, a private banking account maintained by or on behalf of a non-U.S. citizen. A private banking account is defined as an account (or combination of accounts) that:
• requires an aggregate deposit of funds or other assets of more than $1,000,000 established on behalf of one or more individuals with direct or beneficial ownership in the account, and
• is assigned to or administered by someone at bfinance acting as liaison between bfinance and the account’s direct or beneficial owner.
Accounts for Senior Foreign Political Figures
Accounts to be opened for an SFPF or any immediate family member or known close associate of an SFPF require AMLCO review and approval.
An SFPF is defined as a senior official in the executive, legislative, administrative, military, or judicial branches of a foreign government (whether elected or not), a senior official of a major foreign political party, or a senior executive of a foreign government-owned corporation. In addition, SFPFs include any corporation, business, or other entity formed by or for the benefit of an SFPF.
The “immediate family” of an SFPF typically includes that person’s parents, siblings, spouse, children, and in-laws.
A “close associate” of an SFPF is a person widely and publicly known to maintain an unusually close relationship with the SFPF. Close associates include persons who are in a position to conduct substantial domestic and international financial transactions on behalf of the SFPF.
Enhanced Scrutiny
High-risk and offshore correspondent accounts and accounts for SFPFs (and their families and/or known associates) will be reviewed monthly by the AMLCO for potential suspicious activities or transactions that may involve proceeds of foreign official corruption. As part of this process, the AMLCO will examine monthly statements, initial and date copies of such statements to confirm his or her review, and retain the dated and initialed statements for bfinance’s records.
INSIDER TRADING (Insider Trading and Securities Fraud Enforcement Act of 1988, Rule 10b-5 under the Securities Exchange Act of 1934, NTM 89-5)
1 Confidential Information
This section outlines basic policies and procedures to be followed by each employee of bfinance, its affiliates, and its subsidiaries regarding confidential information and information barriers. These policies and procedures are an integral part of bfinance’s commitment to serve its clients in accordance with the highest standards of integrity.
bfinance may at times have confidential information. Much of that information comes from clients. On other occasions, bfinance creates confidential information for its clients or for its own use. The proper use and handling of confidential information may vary depending upon the nature of the information, the source of the information, and the context in which the information was obtained or created.
The objective of these policies is to
• provide for the proper handling of confidential information,
• ensure that bfinance and its employees comply with applicable laws and regulations, and
• avoid situations that may create an appearance of confidential information being misused.
Responsibility for Implementation
Designated principals are responsible for implementing confidential information policies and procedures in their respective business and support groups.
Compliance has overall responsibility for advising business management regarding policies and procedures for handling confidential information. Compliance can access information from all parts of the Firm to assist in coordinating access to information, to analyze potential conflicts and possible misuse of information, and to assess the effectiveness of the Firm’s information barriers.
Compliance is responsible for:
• maintaining watch and restricted lists
• coordinating and documenting Wall-crossing, exceptions, and other approvals and clearances, and,
• handling questions about these policies and related procedures.
Questions and Additional Information
All questions regarding the scope and application of the use of confidential information should be directed to Compliance. If an employee is uncertain of whether information they possess is confidential information, they should consult with Compliance prior to using or disclosing information in question.
Strict adherence to confidential information is critical in maintaining the reputation of the Firm’s integrity and trust of clients and counterparties. Failure to comply may create an appearance of impropriety that causes damage to bfinance’s reputation. It may also subject bfinance to legal and financial liability as well as regulatory sanctions.
Failure to comply with the confidential information procedures may be grounds for disciplinary action, including termination of employment. In addition, failure to comply with these policies and procedures may subject an employee to civil and criminal penalties, which may include imprisonment, fines, and the suspension or loss of the violator’s license or approval to engage in the securities business.
In appropriate instances, the Firm may report violations to governmental or regulatory authorities. Federal securities laws in the U.S. provide for fines equal to triple the amount of gain realized or loss avoided as a result of the misconduct, and the laws of other jurisdictions frequently provide for similar penalties. Both violators and persons controlling violators may be liable for civil damages and penalties.
All Employees – The confidential information procedures applies to all bfinance employees, regardless of specific job responsibilities, department, or location. Every employee has an obligation to become familiar with and to comply with these policies and procedures, as well as any supplemental policies and procedures applicable to that employee (e.g., regional or business group policies).
Temporary Employees, Contractors and Consultants – Temporary employees, contractors and consultants are bound by confidentiality agreements as specified in their contracts. In most instances, however, it is appropriate to require the temporary employee, contractor or consultant to comply with the policies and procedures described herein. The business unit that retains the temporary employee, contractor or consultant is responsible for providing these procedures and other applicable policies and procedures for the business unit to the temporary employee or consultant as appropriate.
Former Employees – An individual who ceases to be an employee of bfinance has a continuing obligation to maintain the confidentiality of inside and proprietary information as long as the individual possesses inside or proprietary information learned during the course of the individual’s employment or affiliation with bfinance.
Certification – Every employee and each other person subject to employee policies is required to certify to bfinance that they have read and understood the confidential information procedures and are complying with those policies and procedures.
Confidential Information – This section contains information on proper handling of confidential information. bfinance employees are prohibited from misusing confidential information. In that regard, all employees must comply with the following policies and procedures, except as specifically permitted by Compliance.
Unless otherwise specified, information about client orders, portfolios and investment intentions are to be treated as confidential and should not be disclosed except as necessary to serve the business purposes of the client.
Information about bfinance’s proprietary activities (including its advisory, banking, and investing activities) and relationships (such as relationships with service providers, consultants and vendors) may also be confidential proprietary information that should not be disclosed except as necessary to serve the business purposes of the Firm and, where necessary, appropriate permissions have been obtained.
Handling of Confidential Information – confidential information may be used only for the specific purposes for which the client, prospective client, or other third-party provided it to bfinance. Any other use of confidential information is a misuse unless the permission is granted by the source that originally provided the information to bfinance.
Handling of Proprietary Information – proprietary information may be used only in a manner that is consistent with the specific purposes for which it was created or obtained by bfinance. Any other use of proprietary information is a misuse unless specific approval is received from Compliance.
“Need to Know” Policy – The Firm has a “need to know” policy with respect to the disclosure of Confidential Information. Employees are expected to limit disclosure of the access to confidential information only to those persons who:
• Must have the information to serve the proper business purposes of the Firm; or
• Must have the information to serve the proper business purposes of the clients; and
• Can be expected to maintain the information in confidence.
Examples: The Firm’s outside counsel, the client’s accountants or attorneys may be in “need to know” position.
The people that may “need to know” should be those that are:
• Personnel and external advisers directly involved in the transaction,
• Managers of people that are involved in the transaction, and
• Fulfilling corporate control functions.
Note: “Need to know” does not include prospecting.
Employees may not disclose:
• Confidential information to any person under any circumstances in which it appears likely that such person will misuse the information;
• Inside information, except in accordance with the Firm’s Chinese Wall-crossing policy; and
• Clients’ personal information to third parties, except as permitted by the Firm’s privacy policies.
Note: Apart from Chinese wall considerations, employees are reminded that they may not disclose Non-public information except in accordance with the terms of any applicable confidentiality agreement or undertaking.
Confidential Information and Trading Restrictions
An employee may not purchase or sell a security or cause the purchase or sale of a security for any account while in possession of confidential information relating to that security.
An employee may not recommend or solicit the purchase or sale of a security for any account while in possession of confidential information relating to that security or other price affected securities, unless in the case of proprietary information, it was created or obtained for the purpose of such recommendation or solicitation in compliance with applicable law.
The prohibition on trading does not apply to certain transactions that are executed in accordance with a pre-existing plan or instruction that complies with certain legal requirements.
In addition, trading restrictions in employee accounts may be restricted by the watch/restricted list.
Preservation of Confidentiality
All employees should observe the following general procedures, in addition to any other applicable departmental policies, to protect confidential information.
Protecting Confidential Information
Employees should not discuss confidential information in public places such as hallways, elevators, taxis, airplanes, airports, subways, trains, and restaurants. Speaker phones should not be used in circumstances where confidential information may be overheard.
Mobile phones, emails and other means of electronic communications may not be secure. Employees should use them with care. Employees may only use firm-authorized email and instant messaging systems when discussing confidential information.
Access to Office Areas and Physical Separation of Business Units
To the extent possible, access to office areas where confidential information may be observed or discussed should be limited to persons with a business reason for being in the area. Firm policy requires that areas where confidential information is accessible or stored are appropriately segregated and secure.
To the extent appropriate, bfinance will physically separate business units that are engaged in its advisory, private equity and investment management activity from business units.
Employees must act in a manner that is consistent with these physical barriers to the flow of confidential information.
Access to Documents and Technology – Confidential Information
Documents should not be placed in office areas where unauthorized persons may have access to them. confidential documents should be stored in locked file cabinets or other secure locations when they are not in use, and they should not be left exposed on desks, printers, fax machines, copiers, or in work rooms or other locations that are not secure.
Code names or numbers should be used for projects that may involve material non-public information. Where code names or numbers have been assigned to a project, internal documents and emails generated with respect to the project should use only the relevant code names and numbers.
Databases and other sources that contain confidential information and are accessible by computer or other technological means should be password-protected or otherwise secure from access by unauthorized persons. Access rights should be reviewed on a periodic basis to ensure that persons accessing systems remain authorized.
Procedures for Reporting Actual or Potential Unauthorized Breach – Any employee who has reason to believe that they or someone else has obtained or disclosed confidential information in a manner not permitted by the Firm policies should contact Compliance. In such circumstances, the employee must not use or further disclose the information.
Watch and Restricted List (“WSL”) – WSL helps to protect against the misuse or the appearance of misuse of confidential information. All employees are required to comply with the restrictions imposed by this list which is updated as need throughout the day.
No Personal Benefit – Employees may not use confidential information, regardless of its source, for their personal benefit or for the benefit of any persons/accounts.
Confidentiality Obligation Continues after Termination of Employment – If employment at bfinance is terminated for whatever reason, the former bfinance employee is required to keep confidential all bfinance proprietary information and non-public information concerning bfinance clients or prospective clients. The employee is not permitted to take any such information away after employment is terminated.
Employees of bfinance, in the normal course of business, receive information of a confidential nature concerning customers and activities of bfinance and affiliates.
Confidential Information is considered an asset of bfinance and must not be used for personal benefit by employees. Clients of bfinance expect employees to scrupulously maintain the confidentiality of information concerning them, and each employee must recognize the obligation to maintain the confidentiality of information as a fundamental duty of employment.
Confidential Information should never be discussed externally and should not be discussed internally except where its disclosure to others within bfinance, including for this purpose bfinance affiliates, is necessary in the conduct of business.
2 Material Inside Information
The federal securities laws prohibit any person from trading in or recommending trades in publicly traded securities based on material inside information, or from disclosing such information to others who use it in trading.
“Inside information” is information about a firm or other entity (such as a government) that has not been publicly disclosed. Information about a firm received under circumstances that indicate it is not yet in general circulation and may be attributable, directly or indirectly, to the Firm or its insiders should be considered inside information. As a rule, to disclose or use such information, one should be able to point to some fact that shows it is generally available, that is, it has been widely disseminated to the public at large.
Inside or nonpublic information about a firm is “material” if a reasonable investor would consider the information important in making a decision to purchase, sell, or hold a security, or if the information, if made public, would have a substantial market impact.
Information should be presumed to be material if it concerns, among other things,
• estimates of financial results, including estimates of earnings and profits;
• projected changes in previously released estimates;
• dividend changes;
• stock splits and stock dividends;
• bankruptcy proceedings;
• substantial changes in current or future operations;
• merger or acquisition plans relating to a firm (whether as acquirer or acquiree);
• anticipated changes in the market for a firm’s securities;
• significant increases or decreases in orders;
• major litigation;
• changes in senior management;
• the purchase or sale of major assets;
• liquidity problems;
• proposed tender offers or purchases or sales of major blocks of stock on the open market or in private transactions, or
• proposed open market purchase or sale programs.
Information may also be material if it concerns significant borrowings, significant disputes with suppliers or customers or in connection with a labor contract, or significant capital expenditure or research and development plans. The above categories do not exhaust the types of information that are or may be material. Any other type of information may be material, depending on the particular circumstances.
Any employee who receives (or believes he or she may have received) material inside information should immediately report the information to Compliance so that any action necessary to avoid possible misuse of such information may be taken promptly.
The CCO is responsible for monitoring compliance with the Insiders Trading Act of 1988 (the “1988 Act”). Each employee must confirm acceptance of and adherence to the 1988 Act by signing an acknowledgement to that effect. As revisions or amendments are made to the 1988 Act, each employee will be supplied with the updates, which must be reviewed and retained.
3 The Civil and Criminal Consequences of Misusing material Inside Information
All employees are prohibited from trading or recommending securities based on material inside information. Failure to respect this prohibition could jeopardize bfinance’s dealings with its customers by reflecting adversely on bfinance’s integrity. It also may result in the offender’s immediate termination.
In addition, trading on or “tipping” others on the basis of material inside information can result in civil liability for bfinance and/or the individuals involved, as well as criminal sanctions that include fines and imprisonment. Offenders may also be permanently barred from the securities business.
The use of confidential client information for personal gain constitutes the theft, conversion, or misappropriation of such information from bfinance. Such acts may constitute a violation of the federal mail and wire fraud statutes and state penal laws and further subject the individual using such information to fines, imprisonment, and monetary damages.
Each employee must carefully adhere to bfinance’s policies and procedures concerning confidential information, including exercising care in communications within and outside bfinance. Any employee who negligently or intentionally violates these policies may be dismissed immediately.
bfinance’s policies for safeguarding confidential information are essential to maintaining the Firm’s integrity and reputation. In the final analysis, these policies will work only with the uncompromising integrity and good sense of each employee.
Compliance may be contacted with any questions in respect of the foregoing policies and procedures.
4 bfinance’s Chinese Wall Policies and Procedures
A “Chinese wall” is a set of written policies and procedures designed to prevent the dissemination of nonpublic information concerning a securities issuer between the various separate departments or affiliates of a firm that regularly come into possession of or generate such information. A Chinese wall also controls dissemination of nonpublic information within a particular department.
An effective Chinese wall permits sales and other activities to continue in the ordinary course of business even though another department or an affiliate possesses inside information. It is thus important that all bfinance employees follow the specific Chinese wall policies and procedures set forth below.
Document and Information Control
Employees must safeguard documents and other materials that contain confidential information. These materials should not be left exposed to public access. Whenever possible, they should be stored in desk or file drawers, cabinets, or otherwise secured when not in use. When these materials are in use, employees should be careful not to leave them unattended unless precautions have been taken to secure them from public access. All employees, for instance, should close their doors when leaving their offices if materials in their offices containing confidential information would be in public view.
Employees should be careful when disposing of documents or other materials that contain confidential information and are encouraged to use paper shredders whenever possible.
Non-descriptive and non-revealing code names and numbers should be assigned to projects and the companies involved at the earliest possible time, such as upon acceptance of a client assignment or active consideration of a transaction. Once assigned, code names and numbers should be used whenever possible in all documents, materials, and discussions inside and outside bfinance, as well as with any other references to the project.
Whenever possible, materials containing confidential information sent to duplicating or telecommunications staff should be transmitted in interoffice envelopes. When such materials are delivered throughout the office, for example to an employee’s desk or in-box, they should be placed face down.
The written Watch/Restricted List is a particularly sensitive confidential document. Any employee that receives the list should exercise great care in protecting it. The list should not be exposed to public access. Employees who receive the Watch/Restricted List should safely and securely destroy previous versions when an update is distributed. (The Compliance Department will maintain a file with all versions of the list.) Other documents that disclose client identities, such as client charge lists, working group lists, code name lists, and number lists should be maintained and destroyed with similar care.
When materials containing confidential information are taken from the office, employees must ensure that such materials are secure from public view. Confidential materials should be removed from bfinance’s offices only for bona fide business reasons. Whenever possible, such materials should not be discarded outside of bfinance’s offices. Particular care should be exercised if materials must be discarded outside of bfinance’s offices to render those materials unreadable and preserve confidentiality.
Employees should be careful not to disclose confidential information inadvertently. Such information, such as the names (or other identifying characteristics) of companies or persons associated with companies involved in actual or prospective transactions, should never be mentioned in discussions in public settings such as in elevators, bathrooms, taxicabs, airplanes, or restaurants.
Employees should not reveal the whereabouts of employees out of the office unless authorized to do so. Inquiries should be answered in general terms. If an outside person urgently needs to reach a bfinance professional, employees should take a message and then contact the professional directly or, if that is not possible, consult with appropriate persons within bfinance on how to handle the situation. This precaution does not apply to inquiries from family members or other bfinance employees.
Employees should avoid making unnecessary copies of documents containing confidential information. For example, copying might generally be limited to current distribution and work needs.
Materials containing confidential information delivered by bfinance or outside messengers to locations outside bfinance’s offices should be sealed in an envelope, folder, or other packaging to secure them from unauthorized access. Such materials should be delivered only to a doorman, receptionist, or other person or to a secure location at the place of delivery. They should not be left on a doorstep or in any other unsecured area.
Control of Sensitive Areas
Employees should check their offices, conference rooms, and workrooms for materials containing confidential information prior to bringing outside persons into these areas. Employees should limit access to offices, conference rooms, and workrooms in use when such rooms are left unattended with materials containing confidential information in them. When finished with a conference room or workroom, employees should ensure that materials containing confidential information are removed or properly discarded.
Visitors to bfinance should not be allowed to frequent the Firm’s nonpublic areas unescorted. Visitors attending meetings at bfinance should not be given access to areas not related to the purpose of the meeting. As a general rule, visitors should not be left unattended in the offices of professional employees or in other areas where they may be exposed to confidential information.
Employees should be careful to avoid discussing confidential information in the reception area and other public areas of bfinance. Reception or secretarial records, such as telephone message books, should be kept out of public view to the extent possible. Employees should be careful not to inadvertently leave materials that contain confidential information in the reception area or other public areas of bfinance.
Policies and Procedures
If any employee receives inside information from any source inside or outside the firm, the employee must immediately inform a Compliance Officer, and otherwise take steps to see that employee trading immediately ceases in any affected securities. The employee should also refrain from making further disclosure of the information. These requirements apply whether or not bfinance is involved in an actual or prospective transaction concerning the issuer(s). If there is any doubt as to the nature of information received, trading should be suspended immediately pending resolution of the question by the Compliance Department.
Employees should not attend meetings at which inside information will be, or is likely to be, discussed unless such employees have been brought “across” the Chinese wall. Inside information should not be transmitted to employees unless such employees have been brought “across” the Chinese wall. Inside information should be transmitted “across” a Chinese wall only by senior supervisory employees on both sides of the wall. The recipient of the information should be advised that the information is inside information and that the recipient must adhere to bfinance’s Chinese wall policies and procedures.
Employees must promptly notify Compliance of the service of any legal process or the initiation of any inquiry, whether written or oral, from a governmental, regulatory, or self-regulatory body. Examples would include the service of a subpoena requiring production of documents or the initiation of a trading inquiry by the SEC or FINRA. Compliance should be consulted immediately and given the opportunity to review any response, whether written or oral, before issuance.
Some employees or members of an employee’s family may be directors of public corporations or “Insiders” for purposes of the Federal Securities Laws. Such persons must notify Compliance of such status or any change in that status so they may be added as appropriate to the Firm’s Watch/Restricted List as described below. bfinance’s general policy is that confidential information received by Insiders in their capacity as Insiders should not be disseminated within bfinance. It is also bfinance’s general policy that no employee may solicit or discuss with Insiders confidential information related to the Insiders’ firm.
The securities laws and Firm policy require specific procedures, called the Firm’s “Chinese wall”, to control information flow. The Chinese Wall policy and procedures have been designed to prevent employees on the “public” side of the wall from obtaining or gaining access to confidential information from the “private” side of the wall.
The placement of a security on the WSL does not terminate or limit the Chinese wall procedures as to that security or its issuer.
Private Side of the Wall
The private side of the wall includes employees in the following departments:
• Investment banking, advisory
• Other departments or individuals that regularly receive inside information
• administrative and back office staff that support the activities of the departments above
Restrictions on Communications
Where a Chinese Wall exists, an employee on one side of the barrier may not communicate (or otherwise give access to) information acquired or created in that business area to an employee on the other side of the Wall except in accordance with specific Wall-crossing procedures and with the prior authorization of Compliance. Physical access restrictions reinforce the information barriers.
Individuals “Above the Wall”
Members of the Compliance Department, and other individual senior managers as determined by Compliance are generally considered “above the Wall”. These individuals may be contacted concerning handling confidential information, without the use of Wall-crossing procedures.
Individuals who are “above the Wall” may not participate in any day-to-day decisions to buy, sell or hold a particular security.
Information Barriers between Investment Banking and Public Side Employees
In connection with a specific financing transaction being considered by the Firm or a matter related to a financing arrangement the Firm has with a client, it may be appropriate for inside information or other confidential client information to be shared with certain non-investment banking personnel in connection with such personnel’s legitimate performance of their business function. Also, in connection with equity offerings, the Firm’s policies and procedures require a review by a Fairness Committee. None of the individuals on the committee is responsible for investment or trading decisions or recommendations.
Investment banking personnel may not disseminate inside information or other confidential client information to any personnel outside of the Investment Banking Division (other than as set forth above) without Compliance’s prior approval.
Wall-Crossings
In certain circumstances, private side employees may need to obtain the advice or assistance of a public side employee. Contacts of this type are permitted so long as inside information is not disclosed to the public side employee.
If it becomes necessary or advisable for a private side employee to disclose inside information to a public side employee, the private side employee must follow the wall-crossing procedures prior to disclosing information that is or may be inside information. Wall-crossing procedures allow for limited disclosure of inside information to public side employees for specific purposes, while continuing to protect the confidentiality of inside information. (Note: In some cases, the very fact that the Firm is working on an engagement for a particular issuer may constitute inside information.)
Effects and Limitations on the Wall-Crosser
A public side employee who has crossed the wall (a “Wall-crosser”) is treated as a private side employee for purposes of these confidential information procedures so long as he or she possesses inside information that has not been made public. The public side employee crossing the wall will receive a policy reminder regarding handling of inside information and the manner in which his or activities may be limited.
A wall-crosser’s public side activities will be restricted with respect to any security, or other financial instrument, to which any inside information he or she receives relates or may affect, unless advised otherwise by Compliance.
The wall-crosser’s senior manager may not be able to participate in day-to-day sales, trading, or research decisions regarding any security or other financial instrument relating to the wall-crossing, if so advised by Compliance. These activities, however, may continue without the participation of the wall-crosser or, in the case of a restricted senior manager, without the senior manager.
Disclosure to a wall-crosser should be limited to “need-to-know” information required for the wall-crosser to carry out his or her work for the private side project. Any other limitations imposed by Compliance and/or the manager authorizing the wall-crossing must be observed. It is important for particular effort to be made to avoid disclosing information (e.g., long-term projections) that will not become public during the course of the project.
A wall-crosser may return to their public side duties when the inside information received has been made public or as otherwise advised by Compliance. No further disclosure of inside information may be made to the public side employee following his or her return to the public side of the wall unless a new wall-crossing request is submitted and approved.
Wall-Crossing Procedures
In general, private side employees should discuss proposed wall-crossings with their senior manager on a project-by-project and person-by-person basis and obtain required approvals prior to contacting a public side employee to bring them across the wall. The senior manager should consider the following factors in evaluating a proposed wall-crossing:
• The importance of the proposed wall-crossing’s objective
• The availability of other means to accomplish the objective
• The timing and duration of any proposed transaction
• Potential adverse impacts on public side activities
• Any threats the proposed wall-crossing may pose to the wall’s integrity
If the senior manager determines that the proposed wall-crossing should be permitted, he or she must notify Compliance. Compliance in turn must seek and receive approval from public side senior management. If the wall-crossing is approved, Compliance make a record of the approval and notify relevant parties.
The senior manager must not disclose the proposed wall-crossing to any person other than the wall-crosser unless advised to the contrary by Compliance. The private side senior manager must also notify Compliance when the private side project or the wall-crosser’s role in the project has ended. Any issues concerning wall-crossings will be resolved by Compliance.
Inadvertent Wall-Crossings
A public side employee who obtains information he or she believes may be inside information without having wall-crosser status should immediately notify Compliance. Unless advised to the contrary by Compliance, the employee should refrain from soliciting or recommending transactions in the related securities or other financial instruments and avoid further disclosure of the information until permitted by Compliance.
Role of the Compliance Department
The Compliance Department oversees the wall-crossing process and maintains records of all wall-crossings. These records include
• the name and the department of the person crossing the wall,
• the name of the issuer(s) involved,
• the name of the person requesting the wall-crossing, and
• the relevant dates.
Compliance, where appropriate, will also be responsible for reminding public Side employees “crossing the wall” and their managers of the prohibitions on misuse and disclosure of inside information.
As an exception to this policy, and only with the Firm’s prior approval, bfinance employees engaged in transactional activities involving the Firm may have access to such information in connection with the transactional activity.
Outside non-bfinance employees who provide services to bfinance, including temporary personnel, are required to execute a confidentiality agreement. Accordingly, employees arranging for outside services should inform Compliance in advance so that such agreement can be executed before the non-bfinance employee’s assignment begins. To the extent possible in arranging outside services, employees should request persons who have worked for bfinance in the past and been found satisfactory.
5 The Watch/Restricted List
The Watch/Restricted List is a confidential listing of securities. The list is usually seen only by senior management and Compliance. The Watch/Restricted List restricts trading or other activity in the listed securities. (Exceptions, if approved by Compliance in writing, may be allowed.) In addition to securities placed on the Watch/Restricted List due to the business activities of and information known by the Firm and Firm’s personnel, the list contains securities added by personnel of affiliated funds that purchase or sell securities in the public markets. The Watch/Restricted List enables monitoring trading or other activity in securities where bfinance possesses, or is likely to come into possession of, inside information concerning the securities.
The Watch/Restricted List’s effectiveness as a monitoring and preventive device depends on the receipt of up-to-date information regarding transactional activities or other developments. Accordingly, each designated principal must contact Compliance (or a designee) to add securities to the list as soon as such securities should be added pursuant to the guidelines set forth below. (This requirement also pertains to those employees who serve on a board of directors or have an outside interest or affiliation with any public firm.) Other employees may also contact Compliance if they believe a security should be added to the Watch/Restricted List. The overall responsibility remains, however, with the senior managing director responsible for a specific deal, client, or potential client.
In no event should senior managing directors or other employees who want to add a security to or delete a security from the Watch/Restricted List communicate this fact to anyone except senior supervisory employees or Compliance. Compliance is responsible for distributing the Watch/Restricted List to senior management for review when additions to the list are made.
With respect to any issuer for which an bfinance employee seeks to serve on the board of directors, such employee is responsible for contacting the CCO to notify him or her of the position to be held and to obtain the CCO’s written approval. Without written approval, bfinance employees are prohibited from serving on such boards. The CCO is responsible for adding any issuer for which an employee serves on the board to the Watch/Restricted List as soon as the employee takes such a position. Such employees are responsible for notifying Compliance as soon as they end their service as a board member so the security can be removed from the Watch/Restricted List.
Securities should be added to the Watch/Restricted List as soon as bfinance is actively considering any involvement in a prospective transaction involving such securities. What constitutes “active consideration” depends on the facts and circumstances of a given situation. Initiation of information gathering and/or background analysis are examples of steps that might constitute active consideration. The criterion is not “formal” retention, as active consideration may take place before “formal” retention.
Adding Securities to the List
Securities should be added to the Watch/Restricted List as soon as bfinance begins active consideration of any involvement in a prospective transaction involving such securities. What constitutes “active consideration” depends on the facts and circumstances of a given situation. Initiation of information gathering and/or background analysis—including valuation studies, creating documents that set forth strategic alternatives, and consultation with outside experts or consultants—is an example of a step that might constitute active consideration. Note that the criterion for addition to the Watch/Restricted List is not “formal retention,” as active consideration may take place before “formal retention.” For example, say active consideration is being given to acquisition of a target firm by tender offer (whether through a hostile transaction, a friendly transaction, a white knight transaction, or otherwise). In such cases, the target firm’s securities should be added to the Watch/Restricted List.
Where a prospective transaction involves, or likely will involve or affect, the securities of an additional firm, consideration should also be given to placing those securities on the Watch/Restricted List. In addition, even where the securities of another firm are not directly involved, where the value of such other firm’s securities may be affected by the transaction (or the prospective transaction is otherwise material to another firm’s securities), the affected securities should also be added to the Watch/Restricted List.
The fact of an issuer’s securities being on the Watch/Restricted List is confidential and such information should be treated as inside information and handled accordingly. In particular, it must not be disclosed to any person outside of bfinance.
Should any employee receive an inquiry regarding a security’s status with regard to the Watch/Restricted List or any other informal restrictions, he or she must respond by saying that Firm policy prohibits any comment and then inform the CCO of the inquiry.
The Grey List and Restricted List
An issuer (or other companies) will normally be placed on the Gray List when the Firm
• receives or expects to receive inside information concerning an entity or its securities in the course of the Firm’s involvement in an assignment or transaction, or because an employee holds a position (e.g., directorship) that may result the receipt of inside information;
• has been retained for an advisory-side assignment; or
• otherwise determines that there is a need to monitor trading activities in such security.
In the case of bfinance, strategic transactions that are or could be material to the Firm will also be noted on the Watch/Restricted List. Such issuer or security will remain on the Watch/Restricted List until the transaction or assignment that prompted its listing there is declined, terminated, or completed.
Watch/Restricted List Maintenance
Compliance is responsible for maintaining the WSL. Requests to add an issuer to or delete it from the WSL may be made by anyone by contacting Compliance.
Compliance will record
• The dates and times that an issuer is placed on or removed from the WSL;
• The name of each contact person who is responsible for providing information on the assignment; and
• The circumstances under which the Firm may receive inside information; or
• Other reason that the Firm has for monitoring activities in a particular Firm’s securities.
The person who initially places an issuer on the WSL is responsible for providing timely and sufficiently detailed updates to Compliance to make determination regarding any status changes on the WSL.
Public side employees may also come into contact with inside or proprietary information affecting third parties that may require that an issuer be placed on the WSL. Employees who know or suspect that they are in possession of such information should contact Compliance who will liaise with Senior Management
Watch/Restricted List Access and Confidentiality
The contents of the Watch/Restricted List and any restrictions imposed by senior management are confidential and access to the list is generally limited to select members of Compliance and certain other individuals as approved by Compliance. Employees who “need to know” that certain issuers or securities appear on the Watch/Restricted List may not disclose this knowledge to anyone.
The Restricted List
The Restricted List is a proprietary list of issuers whose securities or other financial instruments (e.g., bank loans) are subject to restrictions on Firm or personal research, sales, and/or trading. An issuer may be put on the Restricted List in order to
• reinforce the Chinese wall;
• comply with trading practices and other rules of securities regulators or other regulatory bodies or that relate to public takeover codes and regulations; and
• meet other compliance or regulatory objectives.
In general, an issuer will not be placed on the Restricted List until after a relevant transaction or assignment (or the Firm’s involvement in a relevant transaction or assignment) has been publicly announced or has otherwise become a matter of public record.
Because an issuer may be placed on the Restricted List for a number of reasons, no inferences should be drawn concerning an issuer or its securities due to its inclusion on the list. In addition, no information regarding the reasons for a restriction or the timing of its removal may be released.
Any employee with information suggesting a firm or its securities/financial instruments should be placed on or removed from the Restricted List should promptly contact Compliance. In accordance with applicable business group procedures, senior private side employees must keep Compliance informed on a timely basis of current developments in
• securities offerings or distributions,
• merger and acquisition assignments,
• other origination activities, and
• other events that may affect an issuer’s status regarding the Restricted List.
Restrictions on Listed Issuers or Securities
When an issuer appears on the Restricted List, certain sales, trading, and research activities involving that issuer’s securities may be restricted. All employees must strictly observe the Restricted List prohibitions. Employees must also comply with Chinese wall procedures with respect to issuers on the Restricted List. Restricted activities may include
• proprietary trading, including
o market-making and dealing,
o execution of over-the-counter (“OTC”) derivatives, including credit default swaps,
o solicitation of client orders,
o recommendation of the issuer’s securities, and
o transactions for discretionary client accounts (except unsolicited transactions);
• transactions for any employee or employee-related account, advisory account, or error account; or
• the release of, or material changes in, research information, recommendations, or opinions with respect to the related securities.
• In general, unsolicited customer agency orders will be permitted. Note that the Restricted List will indicate which restrictions apply.
• With regard to the Restricted List, Compliance and business supervisors will monitor
• the Firm’s research and trading activity;
• client trading activity; and
• employee and employee-related account trading activity in Restricted List issuers.
Restricted List Maintenance
Compliance determines which companies should be placed on or removed from the Restricted List and when. It also determines the appropriate restrictions.
An issuer will normally be removed from the Restricted List when there is no further transfer to the Firm of inside information after
• the Firm’s participation in the distribution has been completed,
• regulatory restrictions have expired,
• regulatory or shareholder approval of a transaction has been obtained and the transaction is unconditional or closes,
• the Firm’s involvement in any such transaction or assignment relating to the issuer has ended, or
• the transaction or assignment has been concluded.
• Compliance is responsible for recording
• the dates and times that a firm is placed on or removed from the Restricted List,
• the name of the contact person, and
• The nature of the assignment.
Exception Policy
Compliance may, at its discretion, grant exceptions from Restricted List prohibitions. These exceptions may be general (e.g., permitting certain activities during a specified time window) or specific (e.g., permitting a specific bona fide hedging transaction). All requests for exceptions should be directed to Compliance, which will liaise with senior management. Compliance will maintain a record of all exceptions.
6 Designated Principal Responsibilities Regarding Insider Trading
The designated principal will be responsible for detecting and preventing insider trading abuses by
• reviewing securities transactions of employees reported to the Firm and maintaining written evidence of these reviews;
• creating and modifying policies concerning insider trading;
• communicating insider trading policies to employees upon hiring and during annual compliance meetings;
• updating employees on new or revised insider trading regulations and policies;
• obtaining written acknowledgment and consent forms from employees regarding insider trading policies;
• identifying and managing any conflicts of interest resulting from opportunities where the Firm participates in confidential transactions;
• answering employee questions regarding insider trading; and
• maintaining compliance with the Firm’s Chinese wall policies and procedures, as applicable.
In the event of evidence of a trade or action which appears to have been conducted due to possession of material nonpublic information, the Designated Principal will initiate an investigation and notify the President of the Firm, who in turn will notify the appropriate regulatory agencies if the investigation results in a conclusion that insider trading policies were violated. Records of investigations will include:
• The name of the security,
• The date of the trade(s)/action and the investigation,
• The account number, and
• The result of the investigation.
Investigation-related records and reports will be maintained for a period of three (3) years.
FINANCIAL and OPERATIONS ACTIVITIES
This chapter provides key policies and procedures for bfinance’s financial and operations areas. The Financial and Operations Principal has responsibility for general oversight of these areas. Supervisors of specific financial or operations areas are responsible for day-to-day activities.
1 Books and Records (Exchange Act Rules 17a-3 and 17a-4)
Rule 17a-3 identifies the types of books and records that bfinance must keep. Rule 17a-4 defines how long these books and records must be kept. (SROs also specify certain recordkeeping requirements.) bfinance’s designated principals have responsibility for retaining required records for areas under their supervision. The FINOP is responsible for establishing bfinance’s record retention schedule.
bfinance maintains, at a minimum, the following books and records:
|Record |Maintenance Period |Responsibility |
|Statement of Financial Condition |3 years |FINOP/CFO |
|Income Statement |3 years |FINOP/CFO |
|Trial Balance |3 years |FINOP/CFO |
|General Ledger |6 years |FINOP/CFO |
|Net Capital Computation |6 years |FINOP/CFO |
|Net Capital Work Papers |3 years |FINOP/CFO |
|Cash Receipt and Disbursement Blotter |6 years |CCO |
|Purchase and Sales Blotter |6 years |CCO |
|Order Memorandums |3 years |CCO |
|Subscription Agreements |3 years |CCO |
|FOCUS II or IIA |3 years |FINOP/CFO |
|Annual Report from Independent Auditors |3 years |FINOP/CFO |
|New Account Documentation |6 years |CCO |
|Employment Applications |3 years after |CCO |
| |termination | |
|Associated Person Records (including Compensation and Agreements) |3 years after |CCO |
| |termination | |
|Corporate Documents and Fingerprints |Life of the |CCO |
| |Enterprise | |
|Advertising |3 years |CCO |
|Correspondence and Complaints |3 years |CCO |
|Reports from Regulatory Authority Requests |3 years |CCO |
|Terminated Policies & Procedures |3 years |CCO |
|Exception Reports |18 months |CCO |
RN 11-19 Books and Records (Effective Dec 5, 2011)
The SEC has approved FINRA’s adoption of rules governing books and records for the consolidated FINRA rulebook. The requirements will be covered by FINRA Rules 2268, 4511, 4512, 4513, 4514, 4515, 5340, and 7440(a)(4). Capsule summaries of the new rules appear below.
• Rule 2268 (Requirements When Using Predispute Arbitration Agreements for Customer Accounts) – This rule requires predispute arbitration agreements to contain certain highlighted disclosures that apprise customers of the commitments made when they sign these agreements. The rule also updates the disclosure language to reflect amendments to FINRA Rule 12904. Those require arbitrators to provide involved parties with an explanation of eligible case decisions if the parties jointly request such an explanation. Such disclosures must be made at least twenty days before the first scheduled hearing date. The CCO is responsible for these records. Annually, the CCO will ensure that these records are prepared completely.
• Rule 4511 (General Requirements) – Rule 4511 provides greater clarification on member firm obligations related to making and preserving books and records as required under FINRA rules, the Exchange Act, and applicable rules under the Exchange Act, as well as on preserving the books and records in a format and media that complies with Rule 17a-4 under the Exchange Act. In addition, Rule 4511 requires firms to preserve books and records for at least six years in cases where a retention period is not specified under other applicable FINRA or Exchange Act rules. The CCO is responsible for these records. Annually, the CCO will ensure that these records are prepared completely.
• Rule 4512 (Customer Account Information) – Under this rule, FINRA member firms must maintain the name of the associated person, if any, responsible for a customer account, rather than requiring firms to maintain the signature of the registered representative introducing the account. Where a member firm assigns account responsibility to multiple individuals, the firm must maintain a record of each name and the scope of that person’s responsibilities with respect to the account. (The member firm determines whether a particular individual is responsible based on the nature and extent of that person’s activities related to the account.) For discretionary accounts maintained by member firms, the new rule requires such firms to obtain the manual dated signature of each named natural person authorized to exercise discretion in the account. For retention purposes, firms may maintain the signature record on electronic storage media consistent with Rule 17a-4(f) under the Exchange Act. Rule 4512 would not require firms to record the date such discretion was granted nor the age or approximate age of the customer in connection with exempted securities. The CCO is responsible for these records. Annually, the CCO will ensure that these records are prepared completely.
• Rule 4513 (Records of Written Customer Complaints) – This rule clarifies the obligation to keep customer complaint records in each Office of Supervisory Jurisdiction (“OSJ”). The maintenance requirement only applies to complaints regarding the individual office, including those related to activities it supervises. The rule allows firms to maintain required records at the OSJ or make them promptly available there upon FINRA request. Taking into account FINRA’s four-year examination cycle for certain member firms, Rule 4513 requires firms to preserve customer complaint records for at least four years. The CCO is responsible for these records. Annually, the CCO will ensure that these records are prepared completely.
• Rule 4514 (Authorization Records for Negotiable Instruments Drawn from a Customer’s Account) – Member firms or their associated persons must secure a customer’s express written authorization before obtaining from a customer, or submitting for payment, a negotiable instrument drawn on the customer’s checking, savings, share, or other similar account. The new rule sets the retention period for the authorization as three years after its expiration date. The Designated Principal responsible for operations is also responsible for these records. Annually, this Designated Principal will ensure that these records are prepared completely.
• Rule 4515 (Approval and Documentation of Changes in Account Name or Designation) – This rule requires account names or designations to be placed on order forms or similar transaction records before a customer order is executed. The rule also provides approval and documentation procedures for account name or designation changes. The Designated Principal responsible for operations is also responsible for these records. Annually, this Designated Principal will ensure that these records are prepared completely.
• Rule 5340 (Pre-Time Stamping) – The rule prohibits pre-time order ticket stamping in connection with block positioning. This requirement is based on a similar requirement in NYSE Rule Interpretation 410/01. The Designated Principal responsible for Trading is also responsible for these records. Annually, this Designated Principal will ensure that these records are prepared completely.
• Rule 7440(a)(4) (OATS Recordkeeping Requirements) – This rule defines the OATS recordkeeping requirements for orders received or executed by trading departments of “Reporting Members.” The Designated Principal responsible for Trading is also responsible for these records. Annually, this Designated Principal will ensure that these records are prepared completely.
Electronic Storage of Records (Exchange Act Rule 17a-4(f))
bfinance uses electronic storage media and/or micrographic media for certain records. This section details how bfinance complies with requirements related to this type of recordkeeping.
Notification to Examining Authority (Exchange Act Rules 17(d) and 17a-4(f)(2)(i))
bfinance notified FINRA, as required, ninety days prior to employing electronic storage media.
Electronic Storage Media Requirements (Exchange Act Rule 17a-4(f)(2)(ii))
As required by rule, bfinance’s use of electronic storage media meets the following conditions:
• It preserves records in a non-rewritable, non-erasable format.
• It provides for automatic verification of the storage media recording process’s quality and accuracy.
• It serializes original and duplicate storage media units and time dates them for the required retention period.
• It is capable of readily downloading indexes and records as required by the SEC or any SRO of which bfinance is a member.
Ability to Retrieve And Reproduce (Exchange Act Rule 17a-4(f)(3))
bfinance’s use of electronic or micrographic storage also meets the following requirements:
• Facilities for immediate, easily readable record production.
• It is capable of providing facsimile enlargements on request.
• Duplicate copies are stored separately from the originals.
• All information on original and duplicate storage media is organized and indexed accurately.
• It maintains current information on how to access records and indexes.
• It includes an ongoing relationship with an independent third party that has access to bfinance’s electronic storage media and the ability to download records as requested. This party has submitted an undertaking, as required, that indicates its agreement to furnish such information promptly to regulators upon request.
Electronic Audit System
The Firm has developed an internal audit system to conduct ongoing tests of the integrity of records retained in electronic storage media. System personnel monitor these tests for anomalies and take corrective action as soon as possible after a problem has been identified.
Confidentiality of Electronic Records
bfinance (in conjunction with any vendor) uses a password system to protect against unauthorized access to or use of customer records stored on electronic media. bfinance changes passwords periodically and disables access for terminated employees and for anyone who no longer needs it.
Availability of Records in Offices
Access to the records required under Rules 17a-3 and 17a-4 is available in office locations. The FINOP has responsibility for ensuring that required records can be produced at these locations upon regulator request.
2 Net Capital Calculation and Reporting (Rules 15c3-1 under the Exchange Act; NTMs 92-72, 93-30, and 99-44)
The FINOP also has responsibility for calculating and monitoring net capital. In addition, he or she ensures the accuracy and timeliness of periodic net capital reports. Some of the FINOP’s specific responsibilities include
• reviewing and filing bfinance’s financial reports and conducting periodic reviews of accounting records,
• regularly examining bfinance’s minimum net capital requirements to determine if they have changed due to changes in bfinance’s business,
• supervising additions to and withdrawals from the Firm’s equity capital,
• reporting borrowings and subordinated loans for capital purposes, and,
• as noted, establishing procedures to maintain compliance with financial books and records retention requirements.
If bfinance becomes deficient in its net capital position, the FINOP will make the necessary reports to regulators and communicate any business restrictions that may result.
The FINOP also monitors the Firm’s financials for any of the following developments (described in FINRA Regulatory Notice 10-44):
• Cumulative losses in two consecutive months equal to or in excess of twenty-five percent of current excess net capital.
• Cumulative losses in three consecutive months equal to or in excess of thirty percent of current excess net capital
• Net capital ratio at or in excess of 1,000 percent or less than five percent of aggregate debits as defined by Rule 15c3-3 under the Exchange Act
• Net capital of less than 150 percent of the Firm’s minimum net capital requirement
• A debt/equity ratio of seventy percent or greater for thirty days or longer
• Net capital of less than twenty-five percent of haircuts, excluding contractual commitment haircuts
• A restriction or reduction in business pursuant to FINRA Rule 4120
• Other internal or external factors as determined by the staff, including but not limited to, severe operational or books and records problems, cash flow problems, and proprietary and/or customer concentrations
• If applicable, computation of the leverage ratio by dividing total balance sheet assets, less US Treasury and US government agency inventory, by total regulatory capital (the sum of stockholder’s equity and subordinated debt)[4]
The FINOP will document this monitoring as part of the sign-off on the Firm’s net capital computations.
3 Reconciliations
The FINOP is responsible for establishing procedures to reconcile bank statements, depository accounts, and other accounting and business records periodically. Records for bank accounts and other reconciled accounts will be maintained in accordance with regulatory requirements. The FINOP should have access to clearing firm and bank accounts to perform the reconciliations.
4 Other FINOP Responsibilities
The FINOP is responsible for financial reporting, payment of fees and assessments, and maintenance of reporting and payment records. Some of his or her duties include
• filing net capital reports,
• reporting net capital deficiencies,
• reporting notice of books and records deficiencies (Rule 17a-11[d]),
• preparing and filing unaudited financial statements,
• engaging outside accountants for bfinance’s annual audit and notifying regulators when this accountant changes,
• filing audited financial statements with regulators and providing to customers as required,
• notifying regulators of any change in bfinance’s fiscal year, and
• paying assessments and fees to regulators.
Notification Provision for Broker Dealers
In accordance with Rule 17a-11 under the Exchange Act, if the Firm’s computed net capital drops below the required minimum, it must promptly notify the SEC regional and main offices by telegraph or facsimile. In addition, electronic notification will be sent promptly to FINRA via FINRA Regulatory Notifications application.
Should the Firm’s net capital drop below 120 percent of the required minimum, or aggregate indebtedness to net capital ratio exceed 12:1 (8:1 for firms in business less than twelve months), the Firm will notify the applicable SEC and FINRA offices (as noted above) within twenty-four hours of occurrence.
In the unlikely event that the Firm fails to keep the books and records required by Rule 17a-3 under the Exchange Act, it will file notice with the applicable SEC and FINRA offices (as noted above) the same day the records are found not to be current, specifying which record is not current. Within forty-eight hours of this notice, the Firm must transmit a report to the same offices, stating what actions it has taken to correct the problem.
If an independent public accountant notifies the Firm of a material inadequacy in its internal control structure pursuant to Rule 17a-5(h)(2) under the Exchange Act, the Firm will notify the applicable SEC and FINRA offices (as noted above) within twenty-four hours of discovering the independent public accountant’s notification. Thereafter, within forty-eight hours, the Firm must send a report to the same offices describing how it corrected the problem.
All notice filings based on the circumstances described above are the FINOP’s responsibility.
Financial Deficiency Responsibility
FINRA has established criteria to identify when a broker-dealer is approaching financial difficulty and the actions that must be taken. If the Firm has experienced a net capital deficiency, it must suspend business operations until it can return to capital compliance per FINRA Rule 4110(b)(1). If FINRA instructs the Firm to reduce or restrict business activities, the FINOP will work with senior management to address the reduction or restriction. If FINRA instructs the Firm to have a financial audit or examination done by an independent accountant, the FINOP will provide evidence that the audit or examination was conducted.
Fund and Liquidity (FINRA Regulatory Notice 10-57)
As part of the FINOPs review of the Firm’s compliance with the moment-to-moment net capital requirement, he or she will review the Firm’s need for funding and liquidity. The FINOP will be sensitive to adverse circumstances or extraordinary events that may affect the Firm. Events that could affect the Firm involve, for example, deteriorations in asset quality, future earnings volatility, or the loss of funding sources.
Senior management or a risk committee will consider the following factors when reviewing the Firm’s funding and liquidity requirements:
• Assessments of significant counterparties regarding the Firm’s risk exposure
• Negative announcements by counterparties
• The need for limits on types of risks, such as transaction size and liquidity for the types of securities traded
• Weakness in cash flow to meet ongoing needs
• Significant reductions in market value in customer or Firm assets
• Significant concentration in distressed securities by customers or the Firm
• A rise in unsecured debits or debits of a substantial size
• A decline in earnings or projected earnings for the Firm or an affiliate
• A trend toward customers withdrawing assets or closing accounts
• The ability to obtain funding on an ongoing basis or for contingencies
The FINOP will escalate to senior management any indication of red flag in market events, or weakness in the Firm’s regulatory net capital. In addition, the FINOP will consider alternative funding from internal or external parties.
Disclosure of Financial Condition to Customers (FINRA Rule 2261)
Upon request, information about bfinance’s financial condition in its most recent balance sheet will be made available to customers.
5 Fees And Service Charge Disclosures (FINRA Rule 2121)
Broker-dealers are obligated to disclose service charges to customers at the time an account is opened and to existing customers 30 days prior to changes or additions to existing service charges. In general, fees and charges are required to be reasonable and not unfairly discriminatory between customers.
When service charges are established or changed, the FINOP is responsible to notify customers 30 days prior to any changes or additions and all new customers are notified when an account is opened.
6 Fidelity Bonding (FINRA Rule 4360)
The FINOP is responsible for obtaining and maintaining fidelity bonding as required by rule and verifying the adequacy of coverage on at least an annual basis when the bond is subject to renewal.
bfinance will maintain a fidelity bond with minimum coverage in excess of 120% of its current required minimum net capital. In addition, bfinance Point will ascertain that the policy contains provisions that the underwriter will notify FINRA in the event of termination of the policy. The CFO will review the policy annually, as of the anniversary date of the bond, to determine the adequacy of coverage, which should be 120% of the highest net capital required during the preceding twelve months.
If there is any deductible that is more than the greater of $5,000 or 10% of the amount of the coverage, the excess above this amount must be deducted from net worth in the calculation of net capital in accordance with FINRA Rules. The CFO will be responsible for ensuring this deduction is made.
7 RN 11-21 Fidelity Bond (January 2012)
Fidelity bonds generally include a definition of the term “loss” that includes losses resulting from any one act or a series of related acts. The fidelity bond per-loss coverage does not reduce a firm’s coverage amount attributed to other acts unless there is an aggregate liability limit. FINRA would like firms to obtain coverage without an aggregate limit. To this end, the new rule requires all companies to obtain per-loss coverage without an aggregate liability limit unless the member obtains two written statements from insurance providers indicating its ineligibility for such coverage.
A member with a net capital requirement of less than $250,000 must maintain minimum fidelity bond coverage of 120 percent of its required net capital under Rule 15c3-1 under the Exchange Act or $100,000, whichever is greater. Broker-dealers with minimum net capital requirements greater than $250,000 must use the table included in FINRA Rule 4360 to determine their minimum fidelity bond coverage.
The FINOP will review the adequacy of their fidelity bond coverage sixty days before the annual anniversary date of the bond’s issuance. The FINOP will also adjust their coverage based on their highest net capital requirement during the preceding twelve-month period. Documentation of the annual review will be maintained by the FINOP.
8 New Accounts
In addition to review and approval by the Designated Principal, new accounts are subject to bfinance Customer Identification Program (described in the Anti-Money Laundering Program) and verification against a vendor database of potential "problem" accounts.
9 Customer Payments for Purchases
When an order to purchase securities is accepted from a customer, payment from the customer's bank account or other depository must be authorized in writing by the customer. Payment is not acceptable based only on the customer's oral authorization to withdraw funds. Examples of acceptable payment include:
• A check signed by the customer; and
• Written authorization by the customer to draft funds from the customer's bank checking or savings account
Questions regarding proper payments should be referred to Operations or Compliance.
Inadvertent Receipt of Customer Funds or Securities
bfinance does not hold funds or securities for, or owe money or securities to, its customers. Therefore, bfinance is exempt from customer protection requirements under Exchange Act Rule 15c3-3(k)(2)(i). In the event that funds or securities are inadvertently received by bfinance, an entry will be made in a log maintained for that purpose recording the date, the amount, and, in the case of securities, a description of the securities received, and the action taken to return such funds or securities to their rightful owner.
No later than the next business day, bfinance will return the funds or securities to the sender. If the sender cannot be immediately determined, bfinance will open a separate bank account, to be designated as "Special Account for the Exclusive Benefit of the Owner of Funds and Securities," into which the funds or securities will be deposited and held until the rightful owner has been identified.
Guaranteed Accounts
A customer (the "guarantor") may provide a written guarantee to cover the margin calls in another account (the "guaranteed" account) using the equity in the guarantor's account. Written agreements for such guarantees must be provided to Operations.
RRs are prohibited from guaranteeing payment in another customer's account (unless the other customer is an employee-related account and approval has been obtained from Operations).
10 Disbursements of Funds
This section describes bfinance’s procedures for handling disbursements from customer accounts.
Disbursements of Funds To Third Parties
When a customer wishes funds or securities to be paid to a third party in the third party's name, the customer will be required to provide a signed Letter of Authorization (“LOA”) that specifies to whom the funds are to be paid.
Letters of Authorization
An LOA is an important required document whenever a customer asks that funds are to be paid or sent to a third party out of the customer's account. LOAs are an important record for bfinance, both to ensure the customer's instructions are followed and to ensure bfinance requires a wire request form or similar document to be completed prior to any disbursement of funds from an account.
LOA Instructions
RRs or their sales assistants are responsible for obtaining completed LOAs, when necessary.
• A completed LOA is required prior to disbursements to third parties.
• All blanks must be completed on the LOA.
• The customer's signature is required. In the case of a joint account, all joint owners must sign the LOA. For corporations, trust accounts, and other accounts, the authorized person must sign the LOA.
• Completed LOAs are submitted to Operations and should accompany the request to disburse funds or send securities to a third party.
Issuing Checks to Customers
Checks to be paid to customers from their accounts will be paid to the order of the account as it is carried on bfinance’s books and sent to the address appearing on the account. Exceptions require written authorization by the customer. When checks are to be issued to a third party or funds are transferred to a third party, the following procedures apply. Prior to requesting any disbursement of customer funds via check bfinance will complete a check request form or similar document.
11 Safekeeping of Customer Funds and Securities (Exchange Act Rules 8c-1, 15c2-1, 15c3-3 & 17a-13; NTM 99-44)
SEC Rule 15c3-3 specifies requirements for broker-dealers to properly protect customers' funds and securities. These rules include bfinance’s registration of certain funds and securities. Broker-dealers that self-clear are responsible for complying with these rules. Broker-dealers that do not hold customer funds and securities may qualify for exemptive provisions of the Rule.
Exemption from 15c3-3
Because of the nature of bfinance’s business, it qualifies for an exemption under Rule 15c3-3(k)(2)(i). The FINOP is responsible for determining that bfinance qualifies for an exemption.
Assets at Non-FINRA Member Custodians
The FINOP will ensure that the Firm complies with FINRA Rule 4160, which prohibits a member firm from continuing to custody assets at a non-member financial institution when notified by FINRA not to do so. Non- member financial institutions that fail to promptly provide FINRA with written verification of assets maintained at such financial institution pursuant to a request by FINRA will result in action taken by FINRA to prohibit its members from maintaining assets at that institution. After receiving notification from FINRA, the FINOP will transfer the assets to another financial institution in a reasonable period of time in compliance with FINRA Rule 4160.01. The FINOP will retain the FINRA notification and documentation of the actions that were taken.
12 Change of Customer Addresses on Accounts
When a customer requests a change of address, a notification confirming the change of address will be sent to the customer's old and new address. Customer inquiries responding to the change of address notification will be forwarded to Compliance for follow-up.
13 Abandoned Property
When an item of mail is returned by the Post Office as undeliverable, the customer’s account will be immediately recorded as “returned mail” on a spreadsheet. In addition, the envelope with USPS Undeliverable Stamp will be maintained by the Operations Department.
The following steps will also be taken:
• Ops Specialist will log the undeliverable mail into an Excel spreadsheet as “returned mail” and record the date.
• The Excel file will be then given to Customer Service Associate to send an initial notification to the IB/Client (by email and/or phone call) with a 30 day notice to review and correct the client information. The updated client information must be confirmed by the client in writing. Until confirmation is received, the account will be frozen.
• Upon the 31st day after the IB/Client’s initial notification, a certified letter will be sent to the old address requesting an account information update and the Excel spreadsheet will be coded “returned mail, First Notification sent.” The date the First Notification is sent will be recorded also.
• If the First Notification is returned, then this will be noted on the Excel spreadsheet as “lost, First Notification returned”;
• One year after the account was recorded as “lost, First Notification sent” a second certified letter will be sent; the Excel spreadsheet will be updated “lost, Second Notification sent” and the date the Notification is sent will be recorded.
• If the second notification is returned, the spreadsheet will be updated “lost, Second Notification returned”.
• Eleven months after the Second Notification is sent, a Final Notification will be sent by certified mail and the date the Notification was sent will be recorded.
• After the 31st day after the Final Notification Letter is sent, if no response is received GIS will submit a request to the clearing firm for the account to be moved to abandoned property per the clearing firm’s procedures.
The Designated Principal for operations will do the following:
• Approve all address changes in writing:
• Review the undeliverable spreadsheet no less than weekly, and will initial the spreadsheet of maintain a document that notes his/her review.
14 Confirmation Disclosures (Exchange Act Rule 10b-10 and FINRA Rule 2232)
The Designated Principal is responsible for establishing procedures to ensure that standard disclosure required by Exchange Act Rule 10b-10 are provided to customers for each trader, and that special required disclosures on customer confirmations are also included. Examples of some types of special disclosures are explained in the following sections.
Confirmation Disclosures (Exchange Act Rule 10b-10)
Whenever bfinance effects transactions in the securities of an issuer that is under common control with bfinance, a disclosure regarding the common control will be included on or with the confirmation.
Confirmation Disclosure of Non-Rated Taxable Debt Securities
The Designated Principal is responsible for establishing procedures to disclose on confirmations for a taxable-debt security (other than a U.S. Government security) that the security is not rated by a Nationally Recognized Statistical Rating Organization (“NRSRO”). The disclosure is based upon electronic data feeds that are linked to bfinance’s system for generating confirmations from at least two NRSROs that bfinance reasonably believes provide rating information for at least 80% of outstanding rated taxable-debt securities.
The confirmation will include a statement that rating information is based upon good faith inquiry of selected sources.
Third Market Confirmations
If bfinance acts as a broker or makes markets in third market securities, customer confirmations for transactions confirmed plus or minus a differential will include a legend disclosing that a differential was included and its effect on any commission shown.
Required FINRA Disclosures (FINRA Rule 2232)
FINRA Rule 2232(a) requires a broker-dealer to provide a customer written notification , known as a confirmation, with information required by Exchange Act Rule 10b-10 prior to or at the time of the completion of the transaction. In addition, further disclosure must be provided for the following:
• For any transaction in any NMS stock, as defined in Rule 600 of SEC Regulation NMS, or a security that is subject to the reporting requirements of FINRA Rule 6600 Series (other than direct participation programs as defined in FINRA Rule 6420), the settlement date of the transaction; and
• For a transaction in a callable equity security indicate that the security is a callable equity security and that the customer can contact the firm for more information concerning that security.
The Designated Principal will ensure that these disclosures are included in the confirmations. The Principal will check confirmations at least once per year, and document the review.
15 Firm Computers and Computerized Data
bfinance’s CCO is responsible for establishing procedures regarding bfinance’s computers and data maintained on computers, including the following:
• Limiting access to centralized physical data processing and computer sites to authorized personnel only
• Limiting data access to authorized personnel only
• Back-up of data files
• Disaster recovery plans
16 Expense-Sharing Agreements (SEC Letter July 11, 2003 to FINRA Regarding "Recording Certain Broker-Dealer Expenses and Liabilities; NTM 03-63)
The SEC specifies requirements for incorporating an expense-sharing agreement into a broker-dealer's operations and how these agreements are recorded in the broker-dealer's financial records. The FINOP is responsible for ensuring bfinance complies with the SEC's guidelines if it enters into any such agreements. The FINOP will also review the expense sharing agreement annually to confirm that it is accurate, complete and reasonable.
In addition, the FINOP is responsible for notifying FINRA if it enters into an expense-sharing agreement and does not record each of the expenses it incurs relating to its business on the reports it is required to file with the SEC or FINRA. The notice will include the date of the agreement and the names of the parties to the agreement; a copy of the agreement will be provided to FINRA upon request.
17 Solicitation of Proxies (Exchange Act Sec. 14)
RRs are not permitted to solicit proxies from customers. Federal securities rules prohibit solicitation of proxies except in very limited situations. Questions should be referred to Compliance.
18 Customer Requests for References
Customers or prospective customers sometimes request letters of reference from broker-dealers regarding their accounts or future business to be done. Some of these requests in the past have been scams by unscrupulous individuals seeking to capitalize on a broker-dealer's good name. Any such requests should be referred to Compliance for handling.
19 Audit Letters
Auditors sometimes send letters asking bfinance to verify funds and securities on behalf of their customers who also have accounts with bfinance.
All requests should be forwarded to the manager of Operations for response. In no instance should an RR or other branch personnel respond to these requests.
20 Regulatory Fees and Assessments (Exchange Act Sec. 31; FINRA By-Laws, Schedule A, NTMs 04-63 and 05-11)
The FINOP is responsible for paying fees and assessments required by regulators. The FINOP will prepare and submit the Securities Investor Protection Corporation (“SIPC”) and FINRA assessment reports to FINRA annually. A record of information reported and fees or assessments paid are retained in the FINOP's files.
21 New Products (NTM 05-26)
All new products require review and approval prior to being offered new products to customers. A "new product" may include a product that:
• Is new to the marketplace or bfinance.
• Was previously sold only to a limited of bfinance’s customers, such as only to institutional customers and now will be offered to retail customers.
• Will be offered by a category of RRs who did not previously offer the product, such as a product new to retail RRs.
• Involves material modifications to an existing product including risk, product structure, or fees and costs.
• Requires material operational or system changes.
• Involves a new or significant change in sales practices.
• Raises conflicts that have not been previously identified and addressed.
If there is a question whether a product may be a "new" product, it should be submitted for the new product review.
New Product Review Checklist
Individuals and departments wanting to offer new products are required to prepare information for the review by completing the New Product Review Checklist. Information to be provided includes a description of the product, to which the product would be offered, and economic justification of the product. The requestor will be notified regarding approval/disapproval or the need for modifications or additional information.
22 Risk Management (NTM 99-92)
This section generally outlines bfinance procedures designed to address "risk management." Because these procedures address various lines of business that operate in a constantly changing market environment, they are not static and should be adapted by the Designated Principal to meet the needs of bfinance on an ongoing basis.
Risk Practices Regarding Employment and Employees
bfinance has established procedures regarding the hiring of personnel; conduct and review of employee accounts; granting of authority to act in various capacities on behalf of bfinance; and the integrity of bfinance’s systems and financial reporting.
Background Checks (Regulatory Notice 07-55)
One of bfinance’s first lines of defense is the hiring of qualified persons who do not bring high-risk behavior to their positions. bfinance conducts background checks on all applicants for employment with bfinance. All offers of employment are considered conditional pending the outcome of the background checks. These background checks include contact with the applicant's prior employers for at least the past three years. Any adverse information is referred to the hiring manager for consideration prior to finalization of employment.
23 Employee Accounts
Employees are subject to policies governing the conduct of their personal securities accounts.
24 Authority
Employees may only act on behalf of bfinance within the boundaries of authority granted them by bfinance. The following generally outlines the authority of certain employees or committees and their respective responsibilities.
25 Chief Financial Officer (“CFO”)
The CFO (or his/her designee) is responsible for the following on behalf of bfinance:
• Establishing accounting procedures in accordance with generally accepted accounting principles;
• Ensuring the accurate and timely filing of bfinance financial reports with regulators and others where financial reports are required;
• Establishing bank accounts and designating employees authorized to sign checks and transfer funds on behalf of bfinance;
• Interacting with bfinance’s public accounting firm and coordinating the providing of information requested during bfinance’s annual audit; and
• Follow up regarding exceptions or recommendations referred by the outside public accounting firm.
26 Department/Business Unit Managers
Department and business unit managers are responsible for oversight of the activities within their respective department or business unit, with the interests of customers and bfinance as foremost considerations. The general scope of responsibility includes, among other responsibilities, the following:
• Hiring and termination of department/business unit personnel;
• Supervision of department/business unit personnel including periodic reviews and salary administration;
• Creating a safe and positive work environment for personnel;
• Establishing and administering a budget to conduct the activities of the department/business unit; and
• Ensuring only authorized personnel act on behalf of bfinance (check signing, purchasing supplies, etc.).
27 Branch Managers
The Firm maintains two branch office locations. Branch Managers are charged with the supervision of RRs and support staff in their dealings with bfinance’s customers. Branch Manager’s authority and responsibilities are included through out this Manual.
28 Assignment of Responsibility (FINRA Rule 4523)
The Firm is required to designate an associated person responsible for each general ledger account. The designated associated person will be required to oversee entries, and will document this oversight by initialing and dating a prescribed form provided by the FINOP. The FINOP will maintain a list of the designated associated persons and the general ledger account that they are responsible for. The FINOP will have supervisory responsibility over these associated persons. Evidence of the supervision will be documented in the signoff of the FOCUS reports.
In the event that the FINOP is also the only associated person designated for the general ledger accounts, he/she will seek FINRA’s approval per FINRA Rule 4523.01 under a limited size and resource exception.
The Firm will not maintain a suspense account. If so, the will be clearly identified by the FINOP in accordance with FINRA Rule 4523(c) and will the records will be maintained for six years.
29 New Accounts
In addition to review and approval by the designated Branch or Department Manager, new accounts are subject to bfinance’s Customer Identification Program (described in the Anti-Money Laundering Program and Account Opening chapters) and verification against a vendor database of potential "problem" accounts.
BUSINESS CONTINUITY PLAN
1 Business Continuity
FINRA Rule 4370 requires all FINRA broker-dealers to create and maintain a Business Continuity Plan (“BCP”) and that emergency contact information regarding the BCP be provided to the FINRA through the FINRA Contact System (“NCS”).
The Designated Principal is responsible for ensuring that the requirements under Rules 4370 are adhered to and will retain all related books and records, including those indicating the required reviews, along with any amendments made at any time.
Definitions
A “mission critical system” is any system that is necessary, depending on the nature of the Firm’s business, to ensure prompt and accurate processing of securities transactions, including, but not limited to, order taking, order entry, execution, comparison, allocation, clearance and settlement of securities transactions, the maintenance of customer accounts, access to customer accounts and the delivery of funds and securities.
A “financial and operational assessment” is a set of written procedures that allows the Firm to identify changes in its operational, financial, and credit risk exposures. Operational risk focuses on the Firm’s ability to maintain communications with customers and to retrieve key activity records through its mission critical systems. Financial risk relates to the Firm’s ability to continue to generate revenue and to retain or obtain adequate financing and sufficient equity. An eroding financial condition could be exacerbated or caused by deterioration in the value of the Firm’s investments due to the lack of liquidity in the broader market, which would hinder the ability of counter-parties to fulfill their obligations.
2 Business Continuity Plan (FINRA Rule 4370 and NTM 04-37)
bfinance has developed a separate set of Business Continuity Plan procedures to provide a detailed process for response and recovery in the event of a significant business disruption (“SBD”). The purpose of the Plan is to identify responsible personnel in the event of a disaster; safeguard employees' lives and firm property; evaluate the situation and initiate appropriate action; recover and resume operations to allow continuation of business; provide customers with access to their funds and securities; and protect books and records. The Plan was developed considering the types of business conducted, systems critical to support business, and geographic dispersion of offices and personnel. Please see Compliance for a copy of the Firm’s BCP.
Business Continuity Plan
The Firm is required to create and maintain a business continuity plan. The plan will identify procedures relating to an emergency or significant business disruption that are reasonably designed to enable the Firm to meet its existing obligations to customers. In addition, such procedures will address the Firm’s existing relationships with other broker-dealers and counter-parties. The Designated Principal, who will be a member of the Firm’s senior management, is responsible for reviewing and approving in writing the final version of the business continuity plan. By approving the plan, the Designated Principal will be verifying that the plan is specific to the size and needs of the Firm and, at a minimum, addresses the following ten key areas to the extent applicable and necessary:
• Data back-up and recovery (hard copy and electronic)
• All mission critical systems
• Financial and operational assessments
• Alternate communications between the Firm and its customers
• Alternate communications between the Firm and its employees
• Alternate physical location of employees
• Critical business constituent, bank, and counter-party impact
• Regulatory reporting
• Communications with regulators
• Assurance of customers’ prompt access to funds and securities in the event that the Firm cannot continue business
The Designated Principal will also ensure that the business continuity plan addresses any other key areas in order for the plan to be complete and thorough based on the Firm’s business and operations. Where one of the ten categories does not apply to the Firm’s business, the Designated Principal will verify that the plan documents the rationale for its absence.
If the Firm relies on another entity (e.g., clearing firm, service provider) for any one of the ten categories or any mission critical system, the Designated Principal must ensure that the business continuity plan: (1) explains the Firm’s relationship with the other entity and (2) has specific procedures to be followed in light of a significant business disruption. The Designated Principal will refer to the clearing firm’s business continuity plan procedures (or executive summary thereof) in order to ensure that the Firm’s business continuity plan is complete prior to approval; any such documentation provided by the clearing firm will be kept on file.
The Designated Principal is responsible for approving any update of the business continuity plan in the event of any material change to the Firm’s operations, structure, business, or location. The Designated Principal will also supervise the annual review and testing of the plan to determine if any such updates are needed. Such review will be documented and the results provided to senior management. Results of an annual test will be memorialized.
If the Firm will rely on the business continuity plan of a non-member parent corporation, the Designated Principal must ensure that the parent's business continuity plan complies with FINRA Rule 4370 and addresses all requirements under the Rule. In addition, reliance on the business continuity plan of a non-member parent corporation does not relieve the Designated Principal of approving the parent's plan (as it applies to the Firm), conducting an annual review of the plan, and requiring the plan to be updated as necessary to meet all of the requirements of FINRA Rule 4370 and/or in the event of any material change to the Firm’s operations, structure, business, or location.
Disclosure Requirements
The Firm must disclose to its customers how the business continuity plan addresses the possibility of a future significant business disruption and how the Firm plans to respond to events of varying scope. In addressing the events of varying scope, the Firm must: (1) provide specific scenarios of varying severity (e.g., a firm-only business disruption, a disruption to a single building, a disruption to a business district, a city-wide business disruption, and a regional disruption); (2) state whether the Firm plans to continue business during that scenario and, if so, its planned recovery time; and (3) provide general information on its intended response. The disclosure will be made in writing to customers at account opening, posted on the Firm’s website and mailed to customers upon request.
While the Firm must disclose the existence of back-up facilities and arrangements, the Firm is not required to disclose the following factors: the specific location of any back-up facilities; any proprietary information contained in the plan; and the parties with whom the Firm has back-up arrangements. The Firm will include cautionary language in the business continuity plans indicating that such plans are subject to modification, that updated plans will be promptly posted on the website, and that customers may alternatively obtain updated plans by requesting a written copy of the plan by mail.
Emergency Contact
FINRA Rule 4370 requires the Firm to provide FINRA with emergency contact information and to update any information upon the occurrence of a material change. The Firm will designate two emergency contact persons that FINRA may contact in the event of a significant business disruption; such designations will be done via the FINRA Contact System. Each emergency contact person will be a registered principal of the Firm and a member of senior management. In the event of a material change, the Executive Representative (or designee) must promptly update the emergency contact information.
In addition, the Executive Representative (or designee) is responsible for reviewing and, if necessary, updating the Firm’s emergency contact information within 17 business days after the end of each calendar quarter. The Executive Representative (or designee) will document the review in a designated record which must be made available for review upon request of FINRA or SEC staff.
BRANCH OFFICE COMPLIANCE
1 Office Designations
Offices of Supervisory Jurisdiction (FINRA Rule 3110)
An office that includes any of the following activities will be designated as an Office of Supervisory Jurisdiction (“OSJ”) with a resident principal responsible for supervision:
• Order execution and/or market making
• Final acceptance (approval) of new accounts
• Review and approval of customer orders
• Final approval of advertising or sales literature
• Supervision of RRs at one or more other branch offices
Branch Offices Assigned to OSJs (FINRA Rule 3110)
Each branch office that is not an OSJ will be assigned to the supervision of an OSJ. The Designated Principal is required to visit non-OSJ branch offices on a periodic basis and record the visit in a memorandum or other record to be retained by the Designated Principal for the branch location. All business transacted by non-OSJ branch offices must be processed through the supervising OSJ. The Designated Principal is responsible for supervision of the branch office's activities and maintaining files for complaints, correspondence, new accounts, option accounts, advertising, and transactions originating from the branch office.
A branch office may be a "supervisory branch office" that has responsibility to supervise one or more other offices or a "non-supervisory branch office" that has no supervision over other offices.
Non-Branch Locations
Locations used occasionally and exclusively for appointments from time to time between RRs and customers and where the Firm has no other tangible presence are not deemed “branch offices”. RRs conducting business at such locations are required to provide each customer with the address and telephone number of the branch office or office of supervisory jurisdiction that supervises the RR.
Each non-branch business location will be assigned to a branch office or OSJ for supervision. This includes RRs who are assigned to a branch office but transact business at a separate location. These RRs are referred to as off-site RRs. Off-site RRs are required to process all business through the assigned branch office or OSJ. The Designated Principal is responsible for supervision of the non-branch office's activities and maintaining files for complaints, correspondence, new accounts, option accounts, advertising, and transactions originating from the office.
The Firm will maintain a separate listing of all office locations not registered as a branch office pursuant to one or more exemptions under the Uniform Definition, along with the specific exemption(s) relied upon for each location, which will be updated as any changes to these locations occur. The Director of Retail Compliance will review the list of unregistered locations to ensure that they do not require registration. If they do require registration then a supervisor will be assigned and the registration will be complete by the Registration Manager.
Designation of OSJ/Branch Office Supervisors
The Firm will designate a Branch Manager with responsibility for each OSJ, supervisory branch office, and non-supervisory branch office, (office locations of the Firm that do not meet the Uniform Branch Office Definition, and therefore are not registered as branch offices, will also be assigned to a Branch Manager). The Firm is required to identify the Designated Principal of each branch office reported on Form BR; the CCO is responsible for ensuring that such disclosures remain accurate and current.
The CCO maintains a list of registered branch offices in a separate file, along with the branch manager designated to supervise each branch office.
In cases where a branch or department manager responsible for supervising a branch office is a producing manager, the Firm will designate a person senior or “otherwise independent” to the principal to perform the day-to-day supervisory reviews of the principal’s customer account activity.
2 Supervision
Non-OSJ Supervision
An OSJ will be responsible for reviewing the following activities disseminating from non-OSJ branch offices in conformity with FINRA Rule 3110:
• Hiring and supervision of RRs
• Adequate registration prior to effecting securities-related transactions
• Approval and acceptance of new accounts
• Customer account statements
• Outgoing correspondence
• Customer complaints
• Advertising,
• Execution of customer orders
For non-OSJ offices, all new account forms will be faxed or verbally communicated to the OSJ prior to the approval and acceptance of the new customer account. In the case of verbal communication, a copy of the new account form will be forwarded to the OSJ. In addition, all securities orders will be placed, effected through, and approved by the assigned OSJ.
Each OSJ will be evaluated on its own merits based upon the supervisor's experience and other relevant factors when determining what supervisory responsibilities will be assigned to each office.
Supervision of Non-Branch Office Locations
The supervision of representatives in these locations will address at least the following issues:
• Maintaining frequent contact with the individuals to identify problems and any training needs
• Close scrutiny of customer trading activities for “red flags”
• More focused review of new accounts
• Thorough review of all correspondence
• Review of non-securities activities including advertising and correspondence
• Obtaining at least semi-annually an attestation of the RR’s outside activities
If principal or compliance review finds instances in which the RR in non-branch office location is “selling away” from the Firm, disciplinary action will be taken that may include termination of the employee. Such associated persons will be reminded that if they “sell away” from the Firm, they may also be acting in the capacity of an unregistered broker-dealer and the SEC may take action against them.
Supervision of Producing Managers (FINRA Rule 3120)
The customer account activities of managers and other supervisors are subject to supervision. Procedures are included in Section 2 SUPERVISION and COMPLIANCE, Subsection 2.8 Supervision of Producing Managers’ Customer Account Activity.
3 Use of Office Space by Outsiders
Persons not affiliated with Firm are not permitted to conduct business or maintain offices on Firm premises. Office-sharing arrangements require the prior approval of Compliance.
4 Office Records (SEC Rules 17a-3 and 17a-4)
Each office is required to maintain or have access to certain records relating to the business conducted in the office. "Office," for records purposes, means any location where an associated person conducts business (not including a home office or the office of a customer that an RR visits regularly). "Conducting business" includes handling funds or securities or soliciting/accepting orders. Each office is required to designate someone who can explain the office records to regulators.
Following is a list of office records for the most recent two-year period that must be produced in office locations, upon request by regulators. It is not necessary to maintain physical records in office locations if they can be retrieved and reproduced promptly at the office where they are being requested. "Promptly" is generally understood to mean within 24 hours of the request.
• Order records (daily trade blotters, order tickets/memoranda, including for the firm account)
• Receipts/deliveries of securities, receipts/disbursements of cash, all other debits/credits
• Employee records (U4, employment application, compensation agreements, CRD numbers, internal identifying numbers, offices where RR conducts business)
• Customer account records
• Complaints
• Transactions, by RR, including compensation earned, commission schedules, method by which compensation is determined
• Communications with the public (originals of communications received, copies of communications sent; approval of outgoing communications including correspondence, advertising and sales literature, sales scripts, and other outgoing communications requiring the supervisor's approval)
• Record naming the person in the office who can explain records
• Record listing the person responsible for policies and procedures
• Compliance and supervisory manuals, including updates and revisions, until three years after termination of use of the manual
Regulatory Requests for Records
If a regulator (SEC, FINRA, state regulator, or other) requests office records (in person or by another means), Compliance should be contacted immediately. The Firm is obligated to provide prompt response to regulators' requests for information, therefore it is important the record retrieval process begin immediately or as soon as possible after receipt of the request.
Changes in Branch Offices
Compliance is responsible for filing the uniform branch office registration form (Form BR) with the CRD to reflect changes to existing offices or to register new offices. Compliance retains records of branch registration filings.
In addition, Compliance will verify state requirements before an office is opened and will file any necessary application or documents with state authorities who may include the secretary of state, taxing authorities, and/or broker-dealer licensing authorities.
6 Office Inspections
Inspection Cycle
Offices will be inspected according to the following schedule:
• Branch offices - annually (includes OSJs and offices that supervise other offices)
• Non-supervisory branch offices - at minimum every 3 years
• Non-branch offices - periodically as established by Compliance based on factors which may include:
o Types of business conducted in the office
o Volume of business conducted
o Proximity of supervisors
o Number of RRs and other personnel
o Customer complaints and/or regulatory actions filed against office personnel
o Prior year's inspection report findings
o Other factors determined by Compliance
Conducting Inspections
Inspections must be conducted by someone independent of supervisors of the office being inspected. Inspections may not be conducted by anyone who:
• supervise the office being inspected (branch manager, etc.);
• is another supervisor in that office; or
• is directly or indirectly supervised by either of the prior-listed supervisors.
Inspections generally include the following:
• Assignment of inspection responsibilities to a qualified person
• Pre-inspection document/information review including review of prior report(s) for the office
• Scheduling a visit on either an announced or unannounced basis
• For branch offices, scheduling reviews at the supervising office to examine records of supervision
• During a physical inspection, reviewing records and interviewing personnel in accordance with the inspection program
• Preparing a draft report of findings
• Submitting the draft to the appropriate supervisor for comment and response
• Preparing a final report incorporating the supervisor's responses
• Submission of the final report to management
Compliance, at its discretion, initiates unscheduled inspections (when potential significant problems are identified, a change in office management warrants a special review, at the request of senior management, etc.).
Heightened Inspection Requirements
Heightened office inspection requirements apply if:
• The person conducting the inspection works in an office supervised by the branch manager's supervisor; and
• The branch manager generates 20% or more of the revenue of the business units supervised by the branch manager's supervisor.
Heightened inspections may include:
• Unannounced visits.
• Increased frequency of inspections.
• Broadened scope of the inspections.
• Review by other supervisors.
Reports
Written reports of inspections will include:
• The name of the person who conducted the inspection and prepared the report;
• The date(s) of the inspection;
• Areas reviewed which will include, at minimum (depending on types of business conducted in the office):
• Safeguarding customer funds and securities;
• Maintaining books and records;
• Supervising customer accounts serviced by the branch manager ("producing manager");
• Transmitting funds between customers and RRs and between customers and third parties;
• Validating customer address changes; and
• Validating changes in customer account information.
• For any of the above areas not included in the report, an explanation of why they were not included (i.e., the office does not accept funds or securities, the office does not have a producing manager, etc.).
• Observations and exceptions regarding compliance with policies and procedures
• The office supervisor's response regarding exceptions and corrective action
Final reports will be distributed to senior management and the audit committee, if a committee has been appointed.
7 Limited Size Exception
Where the Firm is of such a limited business model and/or size and resources such that it cannot fully comply with the restriction regarding who can conduct an office inspection, a “limited size and resources” exception can be utilized. Pursuant to this exception, the Firm may continue to use the persons previously used to conduct office inspections provided that they are principals and have the requisite knowledge to conduct such inspections. However, the Firm must be able to document in the office inspection reports that its size and resources are such that the Firm had no other alternative.
8 Display of Certificates
Branch offices are required to display certificates on their premises, including the SIPC symbol.
9 Availability Of Rules
Each office that deals with public customers will maintain copies of rules for regulators where Firm is a member. Where Internet access is available, this requirement is satisfied by providing access to the rules published on the regulators' web sites.
ACCOUNT OPENING AND PROCESSING
1 Customer Account Information (Exchange Act Rule 17a-3(a)(17))
Within 30 days of opening an account (or with the next scheduled account statement), the Firm will send the customer a copy of new account information for verification.
Operations will review customer responses that revise new account information and will notify the RR, the RR's supervisor, and New Accounts of the changes.
The Designated Principal will ascertain that each new account form provides, at a minimum, the following information:
• The customer’s name;
• The customer’s address (PO box may be accepted only if a street address is also provided);
• The customer’s social security or tax ID number;
• The customer’s occupation (if applicable);
• The name and address of the customer’s employer (if applicable);
• Whether the customer is of legal age;
• Whether the customer is an employee of another broker/dealer;
• The signature of the registered representative of record;
• The signature of the registered principal accepting the account;
• Whether the account is discretionary or has third party discretion;
• For corporations, partnerships or other entities - the names of the person(s) authorized to transact business on behalf of the entity
• Copy of Brokerage Arbitration Disclosure
When opening a new account, the Company may also request any of the following additional information:
• Type of account (e.g., cash, margin, etc.);
• Ownership of the account (e.g., individual, joint, etc.);
• Securities transfer instructions (e.g., hold in street name, transfer/ship, etc.);
• Instructions for dividend or interest payment (e.g., reinvest, deliver, etc.);
• The customer’s marital status (if applicable); and
• The customer’s home and business phone numbers.
Institutional Accounts
An institutional account is defined as an investment account for : (1) a bank; (2) savings and loan association; (3) insurance company; (4) registered investment company; (5) investment adviser; or (6) any other entity (whether a natural person, Corporation or partnership, trust or otherwise) with total assets of at least $50 million. The Designated Principal will review all account information for the following items that are required for Institutional Accounts:
• The customer’s name;
• The customer’s address (PO box may be accepted only if a street address is also provided);
• The customer’s social security or tax ID number;
• The signature of the registered representative opening the account;
• The signature of the registered principal reviewing the account;
• For corporations, partnerships or other entities - the names of the person(s) authorized to transact business on behalf of the entity;
• Whether registered representative is approved to do business in the customer’s home state,
• Corporate resolution, trust agreement, or other required documentation.
2 Addresses On Customer Accounts
Confirmations and statements and other account information will be transmitted to the customer at the address requested by the customer. bfinance or an employee may not be the sole addressee for a customer's account unless the account is for the direct benefit of bfinance or employee.
Acceptable addresses include:
• For an individual, a residential or business street address (if no street address exists or is available, an APO or FPO box number or the residential or business street address of a next of kin or another contact individual)
• For a non-individual (e.g., corporation or trust), a principal place of business, local office, or other physical location
• For a post office box address, a legal residential or business street address for the customer
• Accounts may not be addressed to bfinance, an RR or other employee of bfinance with the exception of accounts for the beneficial ownership of the RR or employee. Accounts may not be addressed care/of (c/o) someone else unless the customer provides written authorization requesting such an address.
Address changes require written instructions from the customer. Prior to effecting any address change bfinance requires the customer to complete and sign an address change form. All completed forms will be maintained in each customer file. Upon notification of a change of address, a notice will be sent to the customer's old address and new address confirming that an address change has been made to the account. Operations will follow up regarding questions about address changes.
Generally, bfinance does not permit the “holding” of customer mail. In the event a customer requests mail to be held the Firm requires a written request from the customer. The customer’s written request must include the circumstances for the request, as well as the duration.
3 Predispute Arbitration Agreements with Customers (NTMs 05-32 05-09)
Customers will be provided with copies of any signed agreements that include a pre-dispute arbitration agreement within 30 days of signing; the customer will acknowledge receipt of the arbitration agreement on the agreement itself or on a separate document.
In addition, within 10 days of request by a customer, bfinance will provide a copy of any pre-dispute arbitration agreement the customer has signed as well as relevant arbitration forum rules, if requested. The customer will be notified if the signed agreement cannot be located.
4 Accounts Requiring Notification or Consent of Customer's Employer (FINRA Rule 3050)
Employees of Other Broker-Dealers
Prior to executing an order for a person employed by another broker-dealer, the RR must obtain the written approval of the person's employer to open and maintain the account. bfinance will provide duplicate confirmations, statements, or other information requested by the employing broker-dealer.
Employees of FINRA or Exchanges
Prior to executing an order for an employee of a securities or commodities exchange or for an employee of FINRA, the written consent of the employer must be obtained to open and maintain an account. Duplicate confirmations, statements, or other information must be provided to the individual's employer.
5 Post Office Addresses
If the customer opens an account using a post office address, the street address must also be provided on the new account form. The only exception is for customers who reside in rural areas where the post office address is the only address, which should be noted on the new account form.
6 Changes in Account Name or Designation
Before a customer order is executed, the customer account name or designation must be on the order memorandum. Only a Designated Principal can approve any changes in the account name or designation on an order memorandum. In such instances, the Designated Principal must document the essential facts relied upon in approving the change(s) and maintain the record in a designated location at the Firm, where it must be maintained for at least three years, the first two years in an easily accessible place. The following types of changes would not require prior approval: (i) allocations from a parent holding account to sub-accounts by an entity registered under Section 8 of the Investment Company Act of 1940; (ii) allocations among sub-accounts by investment advisers registered under Section 203 of the Investment Advisers Act of 1940 (“Advisers Act”) or registered with the appropriate state authority, as required by Section 203A of the Advisers Act; or (iii) allocations in the context of a prime brokerage arrangement.
7 Updating Account Information and Periodic Affirmation (Exchange Act Act Rule 17a-3(a)(17))
RRs should promptly update customer new account information whenever they are informed or become aware of changes. Updates may be recorded by making revisions to existing forms or completing new forms. New forms require the approval of the Designated Principal and signature of the customer, where required.
Within 30 days of changes to a customer's investment objectives, the firm will send a copy of new account information, including the change, to the customer with a request for correction of any inaccurate information.
At least every 36 months customers will be provided with new account information on record for their accounts and will be asked to advise of any changes or updates. The firm will forward customer responses to Operations. This notification is not required for accounts that have been inactive for 36 months or where no recommendations are made to the customer.
8 Cash and Non-Cash Compensation Policy (FINRA Rules 2310, 2320, 2342 and 5110(a); and NTMs 99-55)
FINRA regulations include restrictions on compensation relating to the sale and distribution of debt, equity, direct participation program (DPP), and REIT securities. RRs may not accept (directly or indirectly) cash or non-cash compensation from outside firms or persons. The only exception includes compensation arrangements specifically approved by bfinance.
Definitions:
Cash compensation is defined as follows:
Any discount, concession, fee, service fee, commission, asset based sales charge, loan or override, or cash employee benefit received in connection with the sale and distribution of securities.
Non-cash compensation is defined as follows:
Any form of compensation received in connection with the sale and distribution of securities, other than cash compensation, which includes, but is not limited to, merchandise, gifts and prizes, travel expenses, meals and lodging.
Approval
Any compensation as defined in this section and paid directly to the RR requires the approval of the Designated Principal. The following section outlines types of non-cash compensation permitted without specific approval, unless otherwise noted.
Types of Permissible Non-Cash Compensation
The following types of non-cash compensation are allowed provided they are not preconditioned on achieving a sales goal:
• Gifts amounting in aggregate value not exceeding $100 annually, per person.
• An occasional meal, ticket to a sporting event or show, or comparable entertainment that is not so frequent nor so extensive as to raise any question of propriety.
• Payment or reimbursement in connection with training or educational meetings, subject to several conditions. Note: Prior approval must be obtained from the Designated Principal before participating in such meetings.
• The location of the meeting is appropriate for its purpose, e.g., at or near the sponsoring Firm's home office; offices of bfinance or facility near an office; or a regional location for a regional meeting. The Designated Principal will determine the appropriateness of the meeting.
• Only expenses incurred by bfinance or its employees are eligible for payment. Expenses for guests of employees (spouse, etc.) will not be reimbursed.
• Non-cash sales incentive programs may be preconditioned on achieving a sales goal provided they are pre-approved in-house incentive programs sponsored by bfinance and meet the following criteria:
• The program must be based on the RR's total production with respect to all of that type of security sold by bfinance (Investment Company, DPP, etc.).
• Credit received for each security is equally weighted.
• Only bfinance employees may participate.
• Other firms may make contributions to the program, provided they do not participate, directly or indirectly, in the organization of the program. However, the outside entity may provide a speaker for the meeting.
PRIVATE PLACEMENTS AND OFFERINGS
This chapter explains the requirements when offering private placements and engaging in private offerings. Private placements and offerings are subject to strict requirements that are imposed on the issuer and those who sell the issue. The requirements for offering a specific private placement will be announced at the time the private placement becomes available for sale. It is important to understand and comply with the requirements for each offering.
This section provides general information about private placements and the regulations that govern their offer and sale. A general understanding of private placements is helpful when considering whether to offer a specific issue to a customer.
There are several general areas of requirements and limitations that affect most private placements.
▪ No general solicitation of purchasers
▪ Limits as to the size of the offering
▪ No advertising or general public meetings about specific private placements
▪ Issuers must provide information to potential investors
▪ Securities purchased are generally restricted as to resale
▪ Number of purchasers is restricted
1 Definition of Terms
The following are common terms included in this chapter.
|Accredited investor |An investor who meets certain criteria that are indicative of sophistication (see the |
| |section Accredited Investors) |
|Letter of Non-Distributive Intent |A letter or form signed by the purchaser of a private placement, affirming that the |
| |investor is purchasing the securities for their own account and are not to be resold unless|
| |registered or subject to an available exemption. |
|Non-Disclosure Agreement |An agreement signed by the offeree stating that proprietary information learned about the |
| |issuer will not be divulged to third parties. |
|Offer |An attempt to sell a security to a potential purchaser |
|Offeree |A prospective purchaser to whom an offer is made |
|Purchaser questionnaire |A questionnaire completed by an offeree to establish the offeree's suitability to purchase |
| |the investment |
|Purchaser representative |A person (not affiliated with the issuer or the broker-dealer selling the issue) who acts |
| |on the purchaser's behalf to evaluate the investment for the purchaser |
|Subscription agreement |The document signed by the purchaser and evaluated by the issuer prior to the purchase |
"Private Placement" Defined
A private placement is a sale of securities that is not subject to registration under the Securities Act of 1933. While private placements are exempt from registration requirements, they are subject to the anti-fraud and civil liability provisions of various federal securities laws. The following sections describe the primary exemptions under which private placements are offered.
Section 4(2) of The Securities Act Of 1933
Some private placements are offered under Section 4(2) which provides an exemption for "transactions by an issuer not involving any public offering." While the section does not specifically outline the requirements for establishing an exemption, the following is a summary of requirements gleaned from SEC interpretations and court decisions.
• There may be no general solicitation of purchasers.
• Offerees and purchasers must have access to information about the issuer and must be able to comprehend and evaluate the information.
• The issuer, broker-dealer, and others acting for the issuer must conduct due diligence to reasonably insure information given to offerees and purchasers is complete and accurate.
• Offerees must have access to meaningful information concerning the issuer and be able to comprehend and evaluate the information.
• Purchasers must acquire the securities for investment and not for resale.
Regulation D
Regulation D is a series of six rules, Rules 501-506, that include exemptions from the registration requirements of the 1933 Act. The specific exemptions are included in Rules 504-506 and differ as to the size of the offering and conditions imposed to qualify for the exemption. The following chart summarizes the three exemptions available under Regulation D. This is only a very general summary of requirements and does not include legal definitions and technicalities that may apply to certain types of private placements.
| |Rule 504 |Rule 505 |Rule 506 |
|Who may invest |Anyone suitable for the |Qualified investors |Qualified investors |
| |investment | | |
|Number of investors |Unlimited |35 non-accredited, |35 non-accredited, |
| | |unlimited accredited |unlimited accredited |
| | |investors |investors |
|Size of offering sold in any consecutive 12 months |$1,000,000 |$5,000,000 |Unlimited |
|Restricted securities? |No |Yes |Yes |
|Public solicitation/advertising allowed? |Yes |No |No |
|Disclosure document required? |No |Yes * |Yes * |
|Opportunity to ask questions of issuer? |No |Yes |Yes |
* Under the rule, disclosure documents are not required to be given to accredited investors though a note to Rule 502(b) states that an issuer should consider providing such information to accredited investors in view of anti-fraud statutes.
The reference to "unlimited accredited investors" in the section "Number of investors" above does not imply that a private placement will, in fact, have an unlimited number of accredited investors. The issuer and the Firm will consider limitations on accredited investors, as appropriate, to preserve the exemption as a private placement and avoid the appearance of a broad solicitation of the issue.
2 Blue Sky Requirements
State securities laws ("blue sky" laws) that apply to private placements vary from state to state. Some states have differing definitions for accredited investors; some states require registration of a securities issue that is otherwise exempt under Federal securities laws.
bfinance and its sales personnel are required to comply with any blue sky requirements that apply to a specific private placement issue. Requirements may differ depending on where the issue originates and where it is sold.
3 The Firm’s Participation in Private Placements
Due Diligence
The Designated Principal will confirm that due diligence was conducted for each private placement that is offered by bfinance. Documentation of the due diligence will be maintained in the deal file for the private placement. Evidence of Designated Principal review will also be recorded in the deal file. Outside counsel may be engaged to assist in due diligence. However, the Designated Principal designated in Appendix A with responsibility for private placement activities will ultimately be responsible to review the due diligence performed. All gaps or omissions in the investigation by such counsel or experts will be separately addressed by the CCO.
The following documents and other items may be requested in connection with the due diligence investigation of an issuer. The actual documentation requested and overall due diligence process will be determined on a case-by-case basis. A supplemental request may be made depending on the responses provided.
A. Personnel
• What are the biographies of principals and key management?
• What are the biographies of legal/compliance personnel?
• References on principals (include contact name, title, issuer, address, phone, & email)
• Background checks on managers (verify education, employment, litigation)
• What is the ownership structure of the issuer?
• Do the fund's principals invest their own money in the fund?
• Do any of the issuer's principals have other business involvements?
• If yes, how much of their professional time is dedicated to each?
B. Organization and Standing
• Articles of Incorporation, including amendments.
• Current bylaws.
• Corporate minute books.
• A list of all jurisdictions in which the issuer or any subsidiary owns or leases assets (including real property), has employees or is qualified to do business as a foreign corporation.
• A list of all current and former subsidiaries of the issuer.
C. Capitalization
• Stock record books and all outstanding stock certificates.
• All agreements relating to the beneficial ownership, voting rights, or pledge of the issuers’ or any subsidiaries common or preferred stock.
• All agreements under which registration or preemptive rights are granted to shareholders of the issuer or any subsidiary.
• All agreements, offering circulars, letters of intent, written proposals, or memoranda of any oral proposals for the disposition, acquisition, or distribution of any assets or shares of the issuer or any subsidiary.
D. Financial Statements
• Year-end financial statements for last 5 fiscal years.
• Interim financial statements for each month during current fiscal year.
• Budgets (including capital expenditure budgets) for last 3 fiscal years and any reports comparing actual results versus budget.
• Business Plan and budgets (including capital expenditure budgets) for the next fiscal year(s), if prepared.
• A description of all indebtedness (other than current trade payables) owed by the issuer or any subsidiary, including the name of the lender, the terms of payment, and the amount currently due and owing.
• Copies of any work papers for the last three fiscal years developed by external auditors.
• Gross sales and the discount, price allowance and all other returns and allowances subtracted to arrive at net sales.
• Description of any material “other” income or expenses (i.e., interest expense, extraordinary items, etc.) for the past four years.
• Description of inter issuer obligations.
• Detail of prepaid expenses.
• Analysis of inventory valuation policies, turnover and obsolescence.
• All management letters, reports or studies on internal controls or other special or regular reports, studies or recommendations produced by external or internal auditors for the last three years, and management's responses thereto.
• Determine if the issuer has an internal accounting function, what it is and who is in charge.
E. Taxes
• Federal, state, local and foreign tax returns for last 5 fiscal years; and
• A description of all audits by any federal, state, local, or foreign taxing authorities, including the date and a summary of each audit.
Affiliations and Conflicts of Interest (RN 10-22)
The CCO will document that the Firm’s affiliations do not compromise its independence as it performs its investigation on any offerings. Any conflict of interests found that could impair bfinance’s ability to conduct a thorough and independent investigation will be resolved prior to the completion of the Firm’s due diligence.
Agreement with the Issuer
bfinance will execute an agreement with the issuer to define the terms of bfinance’s role in the offering and the issuer's obligations as well as other covenants of the offering.
Dollar Amount of the Offering and Integration Issues
The Designated Principal is responsible for ensuring the issue is not oversold relative to the dollar amount disclosed in the offering document compared to the limitations provided in the rules. The supervisor should consider any "integration" of similar offerings by the same issuer for substantially identical purposes for determining whether the issuer meets the dollar limitation under the exemption within a 12-month period of time. The supervisor's review for integration may include one of the following or another procedure determined adequate by the supervisor:
• Reviewing the issuer's financial statements for the past 12 months and/or contact directly with the issuer
• Obtaining a representation letter from the issuer that states that no other offerings were distributed during the 6-month period prior to the current private placement offering or will be distributed in a succeeding 6-month period that would cause the exemption to be lost
Form D
For issues sold under Regulation D, the issuer is required to prepare a notice on Form D and submit it to the SEC within fifteen days after the first sale of securities in the offering. Some states also require filing of Form D. Issuer's counsel is responsible for submitting this form on behalf of the issuer.
4 Sales Of Private Placements
Suitability
A primary objective when selling a private placement is that all securities will be placed with suitable investors. The RR recommending a private placement is responsible for determining that the recommendation is suitable for the offeree based on information known about the potential offeree. The RR must consider minimum investor requirements and other suitability standards for each private placement offering.
Accredited Investors
An accredited investor meets certain financial criteria which may include minimum net worth, minimum income levels and other standards set by federal or state laws and regulations. Typically, accredited investors are not counted toward the limitation on the number of purchasers of a private placement.
Under the Securities Act of 1933, the net worth requirement of an accredited investor is established to more than $1 million of net worth. The net worth excludes the value of the individual investor's primary residence, or the joint net worth with spouse, at the time of the investment.
Information about each private placement (and where it is sold) must be consulted to determine who qualifies as an "accredited investor" for a particular issue. The Designated Principal will confirm that documentation has been maintained that supports the determination that the customer is accredited.
Non-Accredited Investors
Private placements sometimes may be offered to purchasers who do not meet the criteria of accredited investors. The number of allowable non-accredited purchasers will be limited, to preserve the registration exemption and meet requirements specified under federal and state law.
Restricted Nature of Private Placement Securities
Private placement securities are considered "restricted securities," other than those purchased in Rule 504 offerings. Certificates will typically include a legend and securities cannot be resold unless registered or the securities qualify for sale under an exemption.
Purchases must be for investment purposes and not for the purpose of resale. Subscription documents typically include an affirmation that the purchaser is buying the private placement for investment purposes and understands they may not be resold (Letter of Non-Distributive Intent).
RRs must consider the illiquidity of most private placements when making suitability determinations. For example, a private placement would not be a suitable investment for a purchaser who expects to invest his funds on a short-term basis.
Purchaser Questionnaires
Where necessary, the potential investor will be requested to complete a Purchaser Questionnaire which confirms that the investor meets certain minimum requirements to participate in the private offering.
When Purchaser Questionnaires are required, the RR is responsible for obtaining the completed Questionnaire from the potential purchaser and submitting it for review and approval within the timeframe established for the offering.
Purchaser Representatives
If a purchaser is not sufficiently sophisticated to effectively evaluate the investment opportunity, he or she may have a "purchaser representative" (chosen by the investor and not an affiliate of the issuer or broker-dealer) who assists in evaluating the investment. The purchaser representative will be required to sign the offering documents attesting to his or her role acting as purchaser representative.
Offering Memorandum
An offering memorandum is prepared for each private placement, depending on the specific issue. The offering memorandum includes disclosures of information obtained from the issuer including the nature, character, and risk factors relating to the offering. Purchasers will be required to acknowledge, in writing, that they have received the offering memorandum.
An offering memorandum must be provided to all offerees. Offering memorandums are numbered, to enable bfinance to maintain a record of offerees who received them.
Offering memorandums are available from the Firm. RRs must provide information regarding the offeree at the time the memorandum is provided to the prospective purchaser.
If it is necessary to update or correct information in the private placement memorandum prior to closing of the issue, the revised information will be provided to offerees, in writing.
Oral Representations
RRs must not deviate from written private placement memorandum information or other pre-approved information when discussing private placements with potential investors. Written notes of conversations with offerees (and their purchaser representatives) should be made, dated and placed in the customer's file.
Offeree Access to Information
Most private placement memoranda state that it was prepared by counsel from information provided by the issuer. Offerees are invited to meet with representatives of the issuer to make an independent investigation and verification of information in the memorandum.
Limits on Solicitation
A key element of private placement exemptions (other than offerings under Rule 504) is that there may be no general solicitation of the issue. This includes the following restrictions or requirements:
▪ No cold calling of potential offerees.
▪ Advertisements, articles, notices or any other communication cannot be published in any public media (newspapers, magazines, radio, TV, etc.). Tombstone announcements after the offering is completed are permitted.
▪ No seminars or meetings may be held regarding an offering unless each invitee is known and qualified in advance.
▪ Specific offerings or past performance may not be included in generic seminars that discuss the general concept of such investments.
Investment Seminars or Meetings
Because general solicitation is not permitted for private placements, meetings or seminars for potential investors must meet the following requirements:
▪ Seminars or meetings on specific private placements must be approved by the Designated Principal prior to conducting the seminar or meeting.
▪ Seminars or meetings cannot be generally advertised or be the subject of a general solicitation (except for Rule 504 offerings).
▪ Those invited must be limited to investors who meet the criteria for investing in the specific private placement to be discussed. A list of those to be invited, including affirmation the individuals pre-qualify for the investment, must be provided to the Designated Principal prior to conducting the seminar or meeting.
▪ Attendees must be provided with an offering memorandum. No other written material may be provided, unless previously approved by bfinance.
Subscription Agreements
Each potential purchaser will be required to complete the necessary subscription agreement to purchase a private placement.
Subscription agreements are processed as follows:
▪ The RR obtains the signed subscription agreement (and other required offering documents) and submits them to the Designated Principal.
▪ Subscription agreements received are logged into the Sales Blotter for the private placement.
▪ The Designated Principal reviews the agreement for acceptability.
▪ The purchaser's name, address, social security number, and number of shares/units, as required, is forwarded to the escrow agent or the issuer.
▪ Rejected agreements are returned to the RR with an explanation for the rejection.
▪ Accepted agreements are signed/initialed by the supervisor, a copy retained by bfinance, and the original forwarded to the issuer.
▪ The issuer reviews and accepts or rejects the agreement.
▪ A confirmation is sent to accepted purchasers when the purchase is effective.
RRs should be aware that purchasers are not accepted until the issuer accepts them. Final acceptance rests with the issuer who is responsible for ensuring conditions of the offering are satisfied to qualify under the operative exemption.
5 Member Private Offerings (FINRA Rule 5122, RN 09-27, RN 11-04)
FINRA Rule 5122 requires a member firm or associated person that engages in a private placement of unregistered securities issued by the firm or a control entity of such firm to:
▪ disclose to investors in a private placement memorandum, term sheet or other offering document the intended use of offering proceeds and the offering expenses;
▪ file such offering document with FINRA’s Corporate Financing Department at or prior to the time it is provided to any investor; and
▪ commit that at least 85 percent of the offering proceeds will be used for business purposes, which shall not include offering costs, discounts, commissions and any other cash or non-cash sales incentives.
Definitions
Member Private Offering (“MPO”) - a private placement of unregistered securities issued by a member firm or control entity.
Private Placement - a nonpublic offering of securities conducted in reliance on an available exemption from registration under the Securities Act of 1933.
Control Entity - any entity that controls or is under common control with a member firm, or that is controlled by a firm or its associated person(s).
Control - a beneficial interest, as defined in Rule 5130(i)(1), of more than 50 percent of the outstanding voting securities of a corporation, or the right to more than 50 percent of the distributable profits or losses of a partnership or other non-corporate legal entity.
Disclosure Requirement
The CCO will review customer records to confirm that each RR provides a written offering document to each prospective investor in an MPO, whether or not accredited. The offering document will disclose the intended use of offering proceeds as well as offering expenses and compensation.
The CCO will confirm that each RR provides a private placement memorandum or term sheet to each prospective investor containing these disclosures. Where the offering does not have a private placement memorandum or term sheet available, the CCO will prepare an offering document that discloses the intended use of offering proceeds as well as offering expenses and selling compensation.
The offering document shall also disclose if bfinance is an affiliate of the issuer and the nature of the affiliation.
Evidence of these disclosures must be documented in each customer’s file.
Filing Requirement
bfinance does not intend to prepare offering documents. The following procedures are for informational purposes in the event bfinance’s policy changes.
In cases where bfinance prepares an offering document, the CCO will file the offering document with FINRA’s Corporate Finance Department at or prior to the first time the document is provided to any prospective investor including the filing of any amendments or exhibits.
These documents will be submitted as PDFs to the Corporate Finance Department via email at corpfin@. bfinance will include their CRD number for identification purposes as part of their email submission.
Use of Proceed Offerings
The Designated Principal responsible for private placement activities will confirm that at least 85 percent of the offering proceeds raised on MPO’s are used for business purposes (excluding offering costs, discounts, commissions or any other compensation to participating broker-dealers or associated persons). The use of offering proceeds will be consistent with the required disclosures to investors, as described above. Documentation of the Principal’s review will be maintained in the deal file.
Exemptions
Rule 5122(c) provides exemptions for MPOs sold solely to the following:
▪ institutional accounts;
▪ qualified purchasers, as defined in Section 2(a)(51)(A) of the Investment Company Act;
▪ qualified institutional buyers, as defined in Securities Act Rule 144A;
▪ investment companies, as defined in Section 3 of the Investment Company Act;
▪ an entity composed exclusively of qualified institutional buyers, as defined in Securities Act Rule 144A; and
▪ banks, as defined in Section 3(a)(2) of the Securities Act.
In addition, Rule 5122 excludes the following types of offerings:
▪ offerings of exempted securities, as defined by Section 3(a)(12) of the
▪ Exchange Act;
▪ Offerings made pursuant to Securities Act Rule 144A or SEC Regulation S;
▪ offerings of exempted securities with short term maturities under Section 3(a)(3) of the Securities Act;
▪ offerings of subordinated loans under SEA Rule 15c3-1;
▪ offerings of modified guaranteed annuity contracts and modified guaranteed life insurance policies, as referred to in Rule 5110(b)(8)(E);
▪ offerings of securities of a commodity pool operated by a commodity pool operator, as defined under Section 1a(5) of the Commodity Exchange Act;
▪ offerings of equity and credit derivatives, including OTC options, provided that the derivative is not based principally on the member or any of its control entities; and
▪ offerings filed with FINRA under Rule 5110.
Finally, the following types of MPOs are excluded from the rule:
▪ offerings of unregistered investment-grade rated debt and preferred securities;
▪ offerings to employees and affiliates of the issuer or its control entities; and
▪ offerings of securities issued in conversions, stock splits and restructuring transactions made to existing investors without the need for additional consideration or investments on the part of the investor.
6 Sales Pursuant to Exchange Rules 144A
bfinance does not expect to engage in activities that require Rule 144A exemptions. The following procedures are for informational purposes in the event bfinance’s policy changes.
To qualify for the Rule 144A exemption, an offer or sale must comply with four (4) conditions as follows:
• The securities can only be offered or sold to a qualified institutional buyer, or to an offeree or purchaser that the seller and any person acting on behalf of the seller reasonably believes is a qualified institutional buyer.
• The seller or its agent takes reasonable steps to ensure that the purchaser is aware that the seller may rely on the Rule 144A exemption from the provisions of the registration requirements of Section 5 of the Securities Act.
• The securities offered or sold were not, when issued, of the same class as the securities listed on a national securities exchange or quoted on Nasdaq. For convertible or exchangeable securities that are listed or on Nasdaq, the conversion premium must be greater than 10 percent to be eligible for sale. For warrants that may be exercised for securities listed on Nasdaq, the exercise premium must be greater than 10 percent or exercisable for a period greater than 3 years to be eligible for resale.
• For securities of an issuer which is not subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, nor exempt from reporting pursuant to Rule 12g3-2(b) of the Exchange Act, nor is a foreign government eligible to register securities under Schedule B of the Securities Act, the holder and a prospective buyer designated by the holder have the right to obtain from the issuer, upon request, to obtain the following “reasonably current” information:
o A brief statement of the nature of the issuer’s business, products and services;
o The issuer’s recent audited balance sheet, profit and loss and returned earnings statements for the preceding two fiscal years.
Rule 144A Sales Procedures
Security Eligible for Rule 144A – Approval for a sale of Rule 144A securities must be obtained from the Designated Principal prior to execution of the transaction. The Designated Principal will first determine whether the security is eligible for Rule 144A. FINRA established the Private Offerings, Resale and Trading through Automated Linkage (PORTAL) System to facilitate the execution of Rule 144A transactions. If the security is on the PORTAL system, it is presumed to be eligible for sale pursuant to Rule 144A. If the security is not on the PORTAL System, the Designated Principal will determine if the security meets the requirements of Rule 144A(d)(3).
Qualify the Institution: The registered representative should obtain from the buyer information which establishes that it is a qualified institution, and provide the information to the Designated Principal, who will forward the information to the CCO. Such information may be any of the following:
• Financial statements no older than 16 months from the date of sale for a U.S. buyer, and within 18 months for a foreign buyer;
• Documents filed with the SEC or other U.S. Federal, State or local government agency or self-regulatory organization, or foreign governmental agency or self-regulatory organization that is no older than 16 months from the date of sale for a U.S. buyer, and within 18 months for a foreign buyer;
• Certifications by the chief financial officer or other executive officer of the purchaser specifying the amount of securities owned and invested on a discretionary basis by the buyer as of a specific date on or since the close of the buyer’s most recent fiscal year. The registered representative must also be able to demonstrate from the buyer’s documents of a U.S. or foreign bank, or savings and loan association owns and invests on a discretionary basis at least $100 million in securities, and has an audited net worth of at least $25 million.
• Notification to Buyer - The registered representative must obtain a written statement that the buyer is aware that the seller is relying on the exemptive provisions of Rule 144A and provide the Designated Principal, the statement prior to the sale.
• Documentation - The registered representative must document that the buyer obtained financial information from the issuer and provide the Designated Principal a copy of the documentation prior to the sale.
Definitions
When determining the aggregate amount of securities owned and invested on a discretionary basis by a qualified institution, the following instruments and interests shall be excluded:
• Securities issued or guaranteed by the U.S.
• Bank deposit notes and certificates of deposit
• Loan participations
• Repurchase or reverse repurchase agreements
• Currency, interest rate and commodity swaps
The aggregate value of the securities owned and invested on a discretionary basis shall be valued at cost, unless the institution reports its securities holdings in its financial statement on the basis of the market value, and no current information of the cost has been published in which case the market value may be used.
If the institution has subsidiaries, investments that are subject to its discretion and are in its financial statement on a consolidated basis, the investments can be included in the aggregate amount as long as the institution is itself a majority–owned subsidiary that would be included in the consolidated financial statements of another enterprise.
Reasonably Current
Financial information required to be provided by the issuer will be presumed to be reasonably current if:
• The balance sheet is as of a date less than 16 months before the date of resale and the statements of profit and loss and retained earnings are for the 12 months preceding the date of the balance sheet.
• The statement of the nature of the issuer’s business and its product and services was made within 12 months prior to the date of resale.
• If the issuer is foreign and private, the required information meets the timing requirements of the issuer’s home country or principal trading markets.
INVESTMENT BANKING
The Designated Principal is responsible for completing due diligence to assure that adequate information and materials are obtained regarding an issuer. Upon receipt and review of information and materials, the applicable Designate Principal will determine whether bfinance’s participation in the transaction is appropriate. If participation is warranted, materials are presented to Compliance for final approval. Records of the underwriting and approvals are retained in a deal file for six (6) years.
1 Creating a Deal File
At the initial involvement in a potential underwriting, regardless of bfinance’s role, the Designated Principal will establish a "deal file" for the prospective underwriting. The following is a list of items that should be included in the deal file, depending on bfinance’s role in the offering. The documents are intended to serve as supporting documentation.
▪ Letter of Intent with issuer;
▪ Due diligence records including any research and/or analysis gathered during the structuring of the deal;
▪ Approval/acceptance of participation in underwriting;
▪ Preliminary and final prospectus;
▪ Final registration statement;
▪ Agreement Among Underwriters;
▪ Underwriting Agreement;
▪ Purchase Agreement (for competitive deals);
▪ Selected Dealer Agreement (selling agreement);
▪ Regulatory filings;
▪ Financial Statements and/or Filings of the Issuer;
▪ Reviews for Initial Public Offering (“IPO”) certifications;
▪ Road show materials and lists of potential investors who attended and received preliminary prospectuses;
Drafts should be discarded and final documents retained in the file. Attorney-client privileged communications may be maintained in a separate file.
2 Investment Banking Compensation
The Designated Principal will review underwriting compensation issues to ensure compliance with FINRA's Corporate Financing Rule, if applicable.
Foreign Affiliate Activities
Exchange Act Rule 15a-6 exemptions
The following outlines the process for dealing with certain U.S. clients utilizing the exemptions provided by SEC Rules 15a-6 and sets out the respective responsibilities of bfinance and bfinance affiliates.
The SEC Rule 15a-6 exemption provides bfinance affiliates the ability to transact with certain U.S. clients without having to be registered with the SEC. The exemption has a number of restrictions. Communications with clients that are U.S. Institutional Investors can only be done when a chaperone, who is a FINRA registered representative of bfinance, is present on the call.
15a-6(3) Exemption Status – Soliciting Institutional and Major Institutional Investors
Rule 15a-6(3) allows bfinance affiliates to solicit and negotiate in securities transactions with U.S. Major Institutional Investors and U.S. Institutional Investors only if the transaction is effected through bfinance.
Rule 15a-6(4) allows bfinance affiliates to solicit and conduct transactions with the following persons without the intermediation of bfinance or another registered broker-dealer:
• Registered broker-dealers in their capacity as agent or principal
• A number of development banks, international organizations and their agencies, affiliates or pension funds
• A foreign person temporarily in the U.S. who had a bona fide relationship with bfinance affiliates prior to entering into the U.S.
• An Agency or branch of a U.S. entity based outside the U.S. and the transaction is effected outside the U.S.
• U.S. persons based outside the U.S. and the transaction is affected outside the U.S. so long as bfinance affiliates does not direct its selling efforts to specific identifiable U.S. groups that are resident abroad
Chaperoning Requirements (Communicating with U.S. Persons)
Communications with U.S. Persons must be conducted under the following conditions:
• Non-FINRA registered bfinance affiliates can communicate only with U.S. Major Institutional Investors without a FINRA registered chaperone, provided any subsequent transaction is executed via bfinance.
• Communication with U.S. Institutional Investors is allowed if the bfinance affiliate is FINRA registered (i.e. he or she acts as his/her own chaperone). Any subsequent transactions must be executed via bfinance.
• Non-FINRA registered bfinance affiliates can only speak to U.S. Institutional Investors if a FINRA registered representative participates on the call.
• U.S. Institutional Investors can only receive communicated by a non-FINRA registered bfinance affiliate if;
1. The U.S. Institutional Investor is based outside the U.S.
2. The time of the conversation is outside east coast trading hours; and
3. The bfinance affiliate only accepts orders in a non-U.S. security
It is unlikely that reliance will be placed on this exception to the general rules for dealing with U.S. persons. Whenever there is a question, Compliance must be consulted.
Visiting US Persons
Any visits to U.S. Clients in the United States must be reported to Compliance. bfinance affiliates can visit U.S. Major Institutional Investors and U.S. Institutional Investors subject to the following:
• The bfinance affiliate is accompanied by a FINRA registered employee of bfinance.
• Transactions discussed during visits, in U.S. and foreign securities, are executed by bfinance.
The above visits would be documented by a memo that discloses who was in attendance, the date, and a summary of what was discussed.
Unaccompanied visits are possible with U.S. Major Institutional Investors when:
• Such visits do not exceed 30 days per year; and
• bfinance affiliates do not accept orders to effect securities while in the U.S.
All unaccompanied visits will be reported to Compliance for documentation. FINRA registered bfinance affiliates Approved Persons do not have to be accompanied by an additional bfinance employee.
Appendix A - Schedule Of Designated Responsibilities
The attached "Schedule of Designated Responsibilities" outlines each Principal's specific duties and responsibilities as they pertain to the firm’s Written Supervisory Procedures. The schedule shall include titles, registration status, locations of supervisory personnel, and the responsibilities of each supervisor. The schedule will be amended as changes occur in supervisory responsibilities. An additional schedule will be prepared for each Office of Supervisory Jurisdiction (OSJ) designating a Principal responsible for each of the areas outlined in the firm’s Written Supervisory Procedures and the Principal assigned to each registered person.
For each respective responsibility identified in the below “Schedule of Responsibilities”, the Designated Principal will initial and/or sign relevant documents where appropriate to evidence his/her review.
Name: David Vafai
Title: Chief Executive Officer
Principal Licenses: Series 7, 79, 24, 63
Effective Date: May 25, 2012
Schedule of Responsibilities
• Hiring And Supervision Of RRs And Associated Persons
• Annual CEO Certification
Name: David Vafai
Title: Chief Operating Officer, Chief Compliance Officer
Principal Licenses: Series 7, 79, 24 and 63
Effective Date: May 25, 2012
Schedule of Responsibilities
• Annual Internal Inspection
• Business Continuity Plan
• Annual CEO Certification
• AML Program approval
• Approval of outgoing correspondence
• Approval of incoming correspondence
• Review and retention of email
• Form BD Updates/Electronic Filing
• Approval of advertising
• Review and approval of business cards, letterhead, and stationery
• Approval of any use of Firm name, logo or trademarks.
• Customer complaints
• Customer account review
• Fidelity Bond Application/Renewal
• Form BD Updates/Electronic Filing
• Hiring And Supervision Of RRs And Associated Persons
• Supervision of gifts, gratuities, and entertainment
• Supervision of OSJ branches
• FINRA Registration
• Ongoing Continuing Education both Regulatory and Firm Elements
• Ongoing Compliance Training Of Registered Principals
• Retention and preservation of department records
• Record keeping and retention of records SEC rules 17a-4
• RRs compliance review
• Review and updating supervisory and compliance procedures
• Supervision of training activities for new personnel and on going compliance training for RRs
• Insider Trading Compliance
• Lost And Stolen Certificate Program
• New Account Review And Documentation And Approval
• Retention and preservation of department records
• Supervision Of Training Activities For New Personnel And On Going Compliance Training For RRs
Name: Kenneth R. George
Title: Chief Financial Officer, Financial and Operations Principal
Principal Licenses: Series 27
Effective Date: May 25, 2012
Schedule of Responsibilities
• Annual Financial Audit
• Fidelity Bond Application/Renewal
• Preparation And Compliance With Net Capital
• Preparation and Maintenance of Financial Books and Records
A. Balance Sheet
B. Income Statement
C. Trial Balance
D. Net Capital Computation
E. Cash Receipt & Disbursement Blotter
F. Purchase & Sales Blotter
G. Customer Funds & Securities Received Blotter
H. Annual Audit & FINRA & SIPC Assessment Reports
• Preparation Of Regulatory Financial Reports
A. Modified Monthly FINRA Focus IIA
B. Quarterly Focus IIA
C. SIPC 4
D. FINRA Assessment Report
E. Timely Filing Of Audit
• Collection, retention and preservation of enterprise records
• Record Keeping and Retention of Records SEC Rules 17a-4
Name: Samuel Gervaise-Jones
Title: Principal
Principal Licenses: Series 7, 79, 63 and 24
Effective Date: May 25, 2012
• Review of private placements
• Review of investment banking activities
Appendix B - Outside Business Questionnaire
bfinance US Ltd (“bfinance”)
OUTSIDE BUSINESS QUESTIONNAIRE
Outside Business Activity Form
Name of employee:
Date:
As a registered person of this firm I shall not be employed by or accept compensation from, any other party as a result of any business activity outside the scope of my relationship with bfinance, unless I have made prompt written notification to the firm. I further understand that bfinance requires that RRs make such notification on this form.
I certify that I am not and have not been involved in any outside business activities from which I derive economic benefit. I will notify bfinance in the event this status changes.
OR
I hereby notify bfinance that I am currently engaged in the following business activities (other than as a bfinance representative) from which I derive economic benefits. The details of the activity are (Complete more than one form if the there is more than one activity.
|Information To Be Provided |Responses |
|1. Name and address of outside business or other | |
|organization. | |
| | |
|2. Nature of outside business or organization (type of | |
|business or activities engaged in). | |
|3. Websites connected to the business or organization. | |
|4. Explain your proposed involvement and responsibilities,| |
|including any title you will hold. | |
|5. Describe any compensation you will receive. | |
|6. Will you have a personal financial investment in this | |
|activity? If YES, describe. | |
| | |
|7. How many hours per week do you expect to devote to this| |
|activity? | |
|8. Will any of these hours occur during the Firm’s normal | |
|business hours? If YES, explain. | |
|9. Provide any other information you believe would be | |
|helpful in the Firm’s consideration of your request. | |
Employee signature:__________________________________________ Date:
Appendix C- Employee Brokerage Accounts
|Instructions: Please list in detail any and all brokerage accounts including managed accounts and mutual funds held by you or an immediate family member. The Firm |
|must be notified immediately upon the establishment or change of status of any of the below mentioned or new accounts in the future. |
| | | | | | |
| | | | | | |
|Account Name |Account type |Account Number |Brokerage Firm |Account Address |Phone Number |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Appendix D - ANNUAL COMPLIANCE QUESTIONNAIRE
ANNUAL COMPLIANCE QUESTIONNAIRE
Representative Name: _______________________________________________________________________
(PRINT NAME)
SECTION 1: U4 INFORMATION
1. □Yes □No Have any of the following events occurred in the last 12 months? (Check those that apply)
□ Change in home or business address?
□ You were the subject of an oral or written customer complaint?
□ You were involved in any type of regulatory inquiry or investigation, or the SEC, the FINRA, any exchange or state regulatory body sanctioned you?
□ You were involved in any investment-related civil litigation, arbitration or administrative proceeding?
□ You had judgments entered against you?
□ You or any organization that you controlled filed for voluntary bankruptcy or entered into a compromise with creditors?
□ You were arrested, arraigned, charged or indicted for any criminal offense (except for minor traffic violations)?
□ You were convicted of, or pled guilty or no contest to any felony?
□ You were convicted of, or pled guilty or no contest to any misdemeanor involving investments, any investment-related business, fraud, false statements or omissions, wrongful taking of property, bribery, perjury, forgery, counterfeiting or extortion?
□ You legally changed your name?
If yes, □Yes □No Did you promptly notify bfinance ?
SECTION 2: OUTSIDE ACTIVITIES/ACCOUNTS
1. □Yes □No Have you disclosed all outside business activities to bfinance by completing an Outside Business Activities Questionnaire?
If yes, Name of Business(es) Previously Disclosed: ________________________________________
______________________________________________________________________________
If no, Complete Outside Business Activities Questionnaire.
2. □Yes □No Have you engaged in any Private Securities Transactions?
If yes, Please explain:______________________________________________________
3. □Yes □No Do you, your spouse, your dependent children or any other relative or person to whom you provide financial support have any account or an interest in a brokerage account at any brokerage firm other than bfinance?
If yes, attach a copy of the latest statement to this document if you have not already provided.
4. □Yes □No Have you made any political contributions to state or local candidates or officials within the past 24 months?
If yes, please list name(s) of candidate or official and amount of contribution(s)
___________________________________________________________________________
SECTION 3: FIRM WRITTEN POLICIES AND PROCEDURES:
1. □Yes □No Do you have access to the bfinance WSPs and bfinance Compliance Memos in your office via soft copy, or by maintaining a hard copy?
2. □Yes □No Have you read and understand the policies and procedures set forth in the bfinance WSPs and bfinance Compliance Memos?
3. □Yes □No Have you engaged in any conduct that would violate any bfinance policy or would violate any FINRA, SEC or state rule?
(Unregistered persons may proceed to the signature line at the end of this form.)
THE FOLLOWING QUESTIONS ARE FOR REGISTERED PERSONS ONLY
SECTION 3: REGISTRATION REQUIREMENTS
_______ CHECK HERE IF NOT SERIES 6/7 LICENSED AND PROCEED TO THE SIGNATURE LINE
1. As a RR of bfinance during the normal course of business, I perform the following:
(Please check all that apply)
□Yes □No Legal
□Yes □No Compliance
□Yes □No Internal Audit
□Yes □No Back-office operations or similar responsibilities for bfinance
□Yes □No Administrative support functions for registered personnel
□Yes □No Supervision of registered personnel
□Yes □No Solicitation or conduct of business in securities
□Yes □No Training of person associated with bfinance
□Yes □No Other (please explain)
_____________________________________________________________________
SECTION 4: BRANCH OFFICE PROFILE
1. □Yes □No Is your Branch office located in a personal residence?
2. □Yes □No In the past 12 months has your office been visited by the FINRA, SEC, or State Securities and/or Insurance Division?
3. □Yes □No In addition to the products and services offered through bfinance, do you conduct any other type of "investment-related" activities at this branch? ("Investment related activities" are defined as: "pertains to Private Placement Transactions, Commodities, Banking, Fixed Insurance, Variable Annuities, Real Estate or Registered Investment Advisor RIA")
If yes, please indicate the type of activities conducted:
□Private Placement Transactions □Commodities □Banking
□Fixed Insurance □Variable Annuities □Real Estate
□Registered Investment Advisor □Other (please explain): ______________________________________________________________________________________________________________________________________________________
4. □Yes □No Do you conduct any of the activities indicated above under any name other than bfinance?
If yes, please indicate the name(s) of each these business here:
______________________________________________________________________________________________________________________________________________________
5. □Yes □No Does your office location have a website other than bfinance’s website, used for any activities?
If yes, please indicate each web sites address here:
______________________________________________________________________________________________________________________________________________________
6. □Yes □No Do you have a personal website?
If yes, please indicate each web sites address here:
______________________________________________________________________________________________________________________________________________________
7. □Yes □No Do you make changes to any of the websites listed above?
If yes, □Yes □No Have all changes been submit to the Chief Compliance Officer of bfinance for approval prior to publishing?
8. □Yes □No Do you occupy or share office space with or jointly market with a bank, savings bank, savings association, credit union, or other federally insured depository?
9. □Yes □No Do you have responsibility, either directly or indirectly, for paying the expenses of this branch office or otherwise have a financial interest in this branch office or its activities?
If yes, please provide the following for each individual or entity:
Name: Are they FINRA Registered? CRD# or Tax ID#
_________________________ _________________________ _____________________
_________________________ _________________________ _____________________
10. □Yes □No Do you maintain another office, other than your current office location that is listed with bfinance , to conduct securities business?
If yes, please indicate each location(s) address here.
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
11. □Yes □No Do you conduct business at a “location of convenience”? (A “location of convenience” is any location where a RR conducts securities business occasionally and exclusively by appointment for the customer’s convenience. For example, a hotel conference center or other area that is close to the customer. If you conduct business at a "location of convenience: please provide each locations address and a description of the type business being conducted at that location)
_________________________________________________________________________________________________________________________________________________________________________________________________________________________________
SECTION 5: COMMUNICATIONS WITH THE PUBLIC
1. □Yes □No Do you understand the definition of "Advertisement" to be any material, other than an independently prepared reprint and institutional sales material, that is published, or used in any electronic or other public media, including any website, newspaper, magazine or other periodical, radio, television, telephone or tape recording, videotape display, signs or billboards, motion pictures, or telephone directories (other than routine listings)?
2. □Yes □No Do you understand the definition of "Sales Literature" to be any written or electronic communication, other than an advertisement, independently prepared reprint, institutional sales material and correspondence, that is generally distributed or made generally available to customers or the public, including circulars, research reports, market letters, performance reports or summaries, form letters, telemarketing scripts, seminar texts, reprints (that are not independently prepared reprints) or excerpts of any other advertisement, sales literature or published article, and press releases concerning a member's products or services?
3. □Yes □No Do you only use advertising or sales literature that has been approved by bfinance?
4. □Yes □No When sending Advertisement/Sales Literature do you attach a copy of the mailing list to the letter and maintain it in your Advertisement/Sales File?
5. □Yes □No Do you understand the definition of "correspondence" to be " any written letter or electronic mail message distributed to: one or more existing retail customers; and fewer than 25 prospective retail customers within any 30 calendar-day period?
6. □Yes □No Do you use email address when conducting business? (It is prohibited to use personal email when conducting securities business.)
If yes, what email address or addresses do you use when emailing?
___________________________________________________________________________
7. □Yes □No Do you maintain copies of any and all email communications in the Firm’s designated email application?
If no, please explain what system is being used to archive email below:
___________________________________________________________________________
8. □Yes □No Do you submit copies of incoming and outgoing correspondence (including electronic correspondence) to bfinance upon request?
9. □Yes □No Are you only using business cards and letterhead that have been approved by bfinance’s Chief Compliance Officer?
10. □Yes □No Do you conduct any securities seminars or make other Public Appearances?
If yes, □Yes □No Is a Public Appearance/Seminar Notification Form, approved by bfinance on file?
11. □Yes □No Do you participate in cold calling?
If yes, □Yes □No Do you maintain and review the National and State DNC list prior to calling?
□Yes □No Do you forward names and numbers to the bfinance’s Chief Compliance Officer of all requests to be put on the DNC list?
□Yes □No If a script is used, has it been approved by bfinance ?
□Yes □No Do you comply with the Do Not Call procedures in the Written Supervisory Procedures (“WSP”)?
SECTION 6: CUSTOMER ACCOUNTS:
1. □Yes □No Is account paperwork maintained for each client?
2. □Yes □No Are you aware of the requirement to keep New Account information current? (bfinance’s standard is to verify the information on an annual basis if possible and update every 36 months)
3. □Yes □No When material account information changes (name, address, objectives, financial information) are you aware of the requirement to submit account changes to bfinance ?
4. □Yes □No Are securities client files maintained separately from Insurance, Investment Advisory or Outside Activities in compliance with bfinance policy?
5. □Yes □No Do you comply with bfinance’s Customer Identification Program?
6. □Yes □No Is Non-Documentary Evidence used as the primary method for verifying identity?
7. □Yes □No Do you review the Anti-Money Laundering “Red Flags” in the AML WSP?
8. □Yes □No Have you had the occasion to question a customer or transaction that might be indicated by a “Red Flag?
SECTION 7: CASH & NON-CASH COMPENSATION
1. □Yes □No Have you given to or received from a client any item valued in excess of $100, when such gift was given in connection with your business on behalf of bfinance ?
2. □Yes □No In the last 12 months, have you attended an investment Firm or other securities product sponsor due diligence meeting?
If yes, attach details.
3. □Yes □No Have you received any direct marketing reimbursements from Investment Firm or other securities products in the last 12 months?
If yes, attach details.
SECTION 8: GENERAL SECURITIES SALES PRACTICES
1. □Yes □No Do you provide your clients with a current prospectus prior to or at the time of sale, for all non managed accounts, to ensure that a prospectus is delivered to the customer?
2. □Yes □No Do you limit your discussion of securities products with clients to the facts and information contained in the current prospectus for the products?
3. □Yes □No Do you ensure that any securities products that you recommend to your clients are suitable in light of their investment objectives, financial situation and investment experience?
4. □Yes □No Do you understand that you are not permitted to sign another person's name to a document under any circumstances?
5. □Yes □No While associated with bfinance, have you guaranteed a client against loss in connection with any securities transaction?
6. □Yes □No While associated with bfinance, have you shared commissions from any securities transaction for a client with any person or entity who is not associated with bfinance ?
Appendix D - New Hire Checklist
(To be completed by management and included with submitted package)
Name:____________________________________________________________
Pre-hire Authorization Consent Form (permitting CRD and/or background check)
Pre-hire approval received from compliance
Fingerprint card
Employee Contact Information Form
Completed I-9 with two forms of ID attached
Completed W-4 and A-4 (for Arizona residents)
Direct Deposit Form. Must include voided check if electing Direct Deposit
Business Card & Stationery Request Form
Confidentiality and Non-Competition Agreement
Acknowledgement regarding our Electronic Communications Policy
Acknowledgement regarding the Florida Telephone Solicitation Act
Completed U4 or if most recent provided, corrected & signed copy
Acknowledgement of Compliance Policies and Procedures Manual
Outside Business Activity Form
Immediate Family Associated with Financial Industry form
Outside Financial Accounts Form (include any account where securities can be purchased)
Completed Registered Representative Agreement
Commission Schedule
Prohibited Acts form
Copy of State Insurance License(s) if applicable
Copy of Form U5 from prior employer (if registered)
Package reviewed by: ___________________________________________
(Print Name)
Date:___________ ___________________________________________
(Signature)
Please do not submit an incomplete package
Appendix E - AML Senior Management Approval
I, {senior management}, have approved this AML program as reasonably designed to achieve and monitor our firm’s ongoing compliance with the requirements of the BSA and the implementing regulations under it.
Signed:
____________________________
{title}
{date}
Appendix F - Investor Intake Checklist
bfinance US Limited (“bfinance”)
Name of Investor:
Private Fund:
|( or N/A |Item |Description of Required Item and Records |
| |Confidential Private Offering Memorandum |The Confidential Private Offering Memorandum, including all exhibits, was delivered to the |
| | |investor and recorded in the offers and sale log. |
| |Privacy Notification |If the investor is a natural person, a copy of the initial Privacy Policy was delivered as an |
| | |exhibit to the Private Placement Memorandum. |
| |Eligibility |The investor’s Investor Questionnaire/Subscription Agreement was reviewed to ensure all |
| | |eligibility criteria have been met. |
| |Customer Identification and Verification |The investor’s Investor Questionnaire/Subscription Agreement was reviewed to ensure that the |
| | |minimum investor information has been collected and recorded. The Compliance Officer has |
| | |confirmed that all customer verification procedures have been conducted and the Private Fund has |
| | |properly identified the investor under the Advisor’s anti-money laundering policies and |
| | |procedures. |
| | |All identification and verification information has been placed in the investor’s file. |
| |Blue Sky Review |All applicable jurisdictions where the investor is located have been determined and recorded in |
| | |the offers and sales log or other record to track blue sky compliance. |
| | |Counsel has been notified to determine the exempt status of the sale and any applicable filing |
| | |requirements. |
| | |The Private Fund either has a self-executing exemption or the Private Fund has made the |
| | |appropriate notice filing. |
| |OFAC Search |The investor’s name has been cleared through the OFAC Search Engine. |
| | |A record of the search has been placed in the investor’s file. |
| |Offers & Sales Log |The offers & sales log has been updated to include this investor and is complete. |
| |Investor Questionnaire/ Subscription Agreement |The Investor Questionnaire/Subscription Agreement was returned fully completed and executed. |
| | |Any special instructions have been identified and reviewed by the appropriate personnel |
| | |The Investor Questionnaire/Subscription Agreement was reviewed and signed off on by a principal of|
| | |the Private Fund. |
| |Tax Forms |IRS W-9 or other tax forms that may be required were returned fully executed. |
| |Authorization Documents – Trust Investors |If the investor is a trust, the Trust Agreement has been received and reviewed and the Private |
| | |Fund has established who is authorized to bind the trust. |
| |Authorization Documents – Institutional Investors |If the investor is a corporation, LLC or partnership, the Private Fund has established who is |
| | |authorized to bind the entity. |
| |IRA/Traditional & Roth Documentation |A copy of any IRA services agreements and rollover documents have been received. |
| |Side Letter |Any side letter agreement has been fully executed by both parties. |
| |Investment Funds Received |The receipt of the investor’s funds has been verified with the Prime Broker. |
| | |The amount of funds received from the investor is consistent with the amount entered in the |
| | |“Subscription Amount” field in the investor’s completed Subscription Agreement. |
As part of our AML procedures, we collect information from you to satisfy our Know Your Customer requirements. This means that we may request information from you due to a specific identification requirement or as a result of our watch list screening process. We may ask you to provide documentation to help confirm your identity or provide additional information regarding your business.
If you believe that any information we are holding on you is incorrect or incomplete, please write to or email us as soon as possible, at the address below. We will promptly correct any information found to be incorrect.
[Address]
[E-mail]
-----------------------
[1] FINRA’s definition of “Disciplined Firm” now includes a registered broker-dealer that (i) has been formally charged by either the CFTC or a registered futures association with deceptive telemarketing practices or promotional material relating to security futures, those charges have been resolved, and the member has been closed down and permanently barred from the futures industry as a result of those charges; or (ii) a member that in connection with sales practices involving the offer, purchase, or sale of security futures is subject to an order of the SEC revoking its registration as a broker or dealer.
[2] For foreign banks domiciled in high-risk jurisdictions or operating under an offshore banking license, bfinance will determine the bank’s ownership, whether the bank maintains other correspondent accounts for any other bank (and if so identify those banks), and any enhanced scrutiny necessary if the account is approved for opening.
[3] Any carrying or clearing firm whose ratio of such assets to regulatory capital exceeds twenty to one will be identified for further follow-up.
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