SEC sanctions foreign bank for failure to register
The US Securities and Exchange Commission (SEC) has issued a cease and desist order and has imposed remedial sanctions upon a foreign bank which failed to register as a broker-dealer or as an investment adviser.
Under the US Securities Exchange Act of 1934, as amended (Exchange Act), and the US Investment Advisers Act of 1940, as amended (Advisers Act), anyone who uses the US mail or any other means of interstate commerce to effect securities transactions, or to provide investment advice, may be subject to registration with the SEC.
According to the SEC, the foreign bank maintained several US client accounts holding securities constituting millions of dollars in assets under management. The SEC also alleged that the bank’s relationship managers made dozens of trips to the US to meet with clients, in addition to communicating with clients by means of interstate commerce.
The SEC found that throughout the period that the bank’s relationship managers were undertaking these activities, the bank was aware of the broker-dealer and investment adviser registration requirements. In fact, the bank made several attempts to transfer US clients first to a separate entity and when that initiative failed, to terminate the relationships. However, the relationship managers ultimately failed to complete the terminations.
Although the bank realised a few million dollars in pretax income from the business activities for which it should have been registered, the SEC ordered the bank to pay more than double that amount in disgorgement of fees, prejudgment interest and fines.
The SEC recently has been focusing on non-US entities’ failure to register. It is very important if a non-US entity is providing broker-dealer or investment adviser services in the US or to US clients, that it consult with counsel to determine whether it must register. Non-US entities must keep in mind that if they are providing certain types of services to US clients, they are still required to comply with US laws.
Clients with questions about how they may be affected by the SEC’s registration rules should contact Withers’ regulatory team for guidance.